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 March 30, 2002
--------------
OR
__ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from _________ to ___________
Commission file number 0-17038
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Concord Camera Corp.
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(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. 6th Floor, North Tower, 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 -27,483,833 shares as of May 3, 2002
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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 March 30, 2002 and June 30, 2001 2
Condensed consolidated statements of operations for the three and
nine months ended March 30, 2002 and March 31, 2001 3
Condensed consolidated statements of cash flows for the nine months ended 4
March 30, 2002 and March 31, 2001
Notes to condensed consolidated financial statements 5
Item 2. Management's Discussion and Analysis of Financial Condition 9
and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk 17
Part II. Other Information
Item 1. Legal Proceedings 18
Item 4. Submission of Matters to a Vote of Security Holders 18
Item 6. Exhibits and Reports on Form 8-K 18
1
PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
Concord Camera Corp. and Subsidiaries
Condensed Consolidated Balance Sheets
March 30, 2002 June 30, 2001
-------------- -------------
(Unaudited) (Note 1)
Assets
Current Assets:
Cash and cash equivalents $106,534,867 $ 57,474,828
Short-term investments - 49,869,567
Accounts receivable, net 18,538,778 25,253,614
Inventories 23,857,965 30,766,198
Prepaid expenses and other current assets 4,674,668 4,128,858
------------ ------------
Total current assets 153,606,278 167,493,065
Property, plant and equipment, net 21,228,828 24,396,407
Goodwill, net 3,720,528 3,720,528
Other assets 20,479,980 18,055,713
------------ ------------
Total assets $199,035,614 $213,665,713
============ ============
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable $ 9,681,981 $ 17,991,337
Accrued expenses 11,769,402 15,447,170
Current portion of obligations under capital leases - 503,547
Other current liabilities 2,284,386 2,547,719
------------ ------------
Total current liabilities 23,735,769 36,489,773
Senior notes 14,928,542 14,912,501
Other long-term liabilities 9,712,648 7,926,290
------------ -----------
Total liabilities 48,376,959 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; 28,989,609 and 28,911,734 shares issued
as of March 30, 2002 and June 30, 2001, respectively 140,478,471 140,255,065
Paid-in capital 7,442,421 4,321,856
Deferred stock-based compensation (866,658) -
Retained earnings 7,743,508 13,914,908
Notes receivable arising from common stock purchase
agreements (1,949) (17,542)
------------ ------------
154,795,793 158,474,287
Less: treasury stock, at cost, 1,542,526 shares (4,137,138) (4,137,138)
------------ ------------
Total stockholders' equity 150,658,655 154,337,149
------------ ------------
Total liabilities and stockholders' equity $199,035,614 $213,665,713
============ ============
See accompanying notes.
2
Concord Camera Corp. and Subsidiaries
Condensed Consolidated Statements of Operations
(Unaudited)
For the three months ended For the nine months ended
------------------------------------ --------------------------------
March 30, 2002 March 31, 2001 March 30, 2002 March 31, 2001
-------------- -------------- -------------- --------------
Net sales $26,421,522 $23,794,890 $98,574,481 $143,203,785
Cost of products sold 24,614,834 23,382,413 83,696,194 115,886,748
----------- ----------- ----------- ------------
Gross profit 1,806,688 412,477 14,878,287 27,317,037
Selling expenses 1,432,453 734,237 4,586,374 5,311,670
General and administrative expenses 4,071,135 3,629,964 16,252,486 12,393,050
Recovery of operating expenses, net 1,150,000 - 1,150,000 -
Variable stock-based compensation expenses 1,169,276 - 2,824,858 -
Terminated acquisition costs - - - 800,207
Interest expense 569,146 704,903 1,864,275 1,948,293
Other income, net 319,912 1,122,045 2,683,096 3,640,392
----------- ----------- ----------- ------------
Income (loss) before income taxes (3,965,410) (3,534,582) (6,816,610) 10,504,209
Provision (benefit) for income taxes (617,324) 202,274 (645,210) 1,248,005
----------- ----------- ----------- ------------
Net income (loss) $(3,348,086) $(3,736,856) $(6,171,400) $ 9,256,204
=========== =========== =========== ============
Basic earnings (loss) per share $ (.12) $ (.14) $ (.23) $ .36
=========== =========== =========== ============
Diluted earnings (loss) per share $ (.12) $ (.14) $ (.23) $ .32
=========== =========== =========== ============
Weighted average
common shares outstanding-basic 27,442,361 27,243,801 27,425,291 25,942,837
Dilutive effect of stock options - - - 2,570,665
----------- ----------- ----------- ------------
Weighted average
common shares outstanding-diluted 27,442,361 27,243,801 27,425,291 28,513,502
=========== =========== =========== ============
See accompanying notes.
3
Concord Camera Corp. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
For the nine months ended
----------------------------------------
March 30, 2002 March 31, 2001
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Cash flows from operating activties:
Net income (loss) $ (6,171,400) $ 9,256,204
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Depreciation and amortization 4,626,438 4,170,245
Non-cash compensation expense 2,872,544 363,602
Provision on inventory for bankrupt customer 1,011,274 -
Provision on accounts receivable for bankrupt customers 2,282,871 -
Changes in operating assets and liabilities:
Accounts receivable 4,431,957 3,906,399
Inventories 5,896,953 (5,730,852)
Prepaid expenses and other current assets (545,810) 1,292,819
Other assets (3,169,871) (1,357,991)
Accounts payable (8,309,352) (6,328,196)
Accrued expenses (3,769,935) (5,185,563)
Other current liabilities (171,164) (667,688)
Other long-term liabilities 1,786,277 51,992
------------ ------------
Net cash provided by (used in) operating activities 770,782 (229,029)
------------ ------------
Cash flows from investing activities:
Proceeds from short-term investments 49,869,567 -
Purchases of property, plant and equipment (1,427,580) (6,051,702)
------------ ------------
Net cash provided by (used in) investing activities 48,441,987 (6,051,702)
------------ ------------
Cash flows from financing activities:
Net borrowings under short-term debt
agreements - 2,997,619
Principal repayments under capital lease obligations (503,547) (1,767,186)
Net proceeds from issuance of common stock 350,817 97,636,429
------------ ------------
Net cash (used in) provided by financing activities (152,730) 98,866,862
------------ ------------
Net increase in cash and cash equivalents 49,060,039 92,586,131
Cash and cash equivalents at beginning of period 57,474,828 24,390,294
------------ ------------
Cash and cash equivalents at end of period $106,534,867 $116,976,425
============ ============
See accompanying notes.
4
CONCORD CAMERA CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------------
March 30, 2002
--------------
(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 10Q 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 nine-month period ended March 30, 2002 ("Nine Months Ended March
2002") 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. See Note 7 - Recent Accounting Pronouncements. 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, European Euro, 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 and services 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 March 30,
2002, 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:
March 30, 2002 June 30, 2001
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Raw materials and components $12,914,461 $23,987,935
Finished goods 10,943,504 6,778,263
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$23,857,965 $30,766,198
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5
Note 4 - Supplemental Disclosures of Cash Flow Information:
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For the nine months ended
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March 30, 2002 March 31, 2001
-------------- --------------
Cash paid for interest $1,325,437 $1,439,236
========== ==========
Cash paid for income taxes $ 498,474 $1,910,262
========== ==========
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. Through the nine months ended March 2002, there
has been a reduction of 69 employees. The Company has also reduced its
manufacturing workforce in the PRC by approximately 2,000 workers. Costs accrued
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 Nine
Months Ended March 2002, the Company implemented elements of its Restructuring
Initiative and incurred approximately $776,000 in payments related to personnel
redundancy costs and facilities consolidation. The balance of the restructuring
accrual of approximately $624,000 was included under the caption accrued
expenses in the accompanying condensed consolidated balance sheet at March 30,
2002. The table below summarizes the balance of the accrued Restructuring
Initiative expenses and the movement in that accrual as of and for the Nine
Months Ended March 2002:
Accrued Balance First Quarter Second Quarter Third Quarter Accrued Balance
June 30, 2001 Payments Payments Payments March 30, 2002
--------------- ------------- -------------- ------------- ---------------
Personnel redundancy $1,000,000 $298,000 $116,000 $172,000 $414,000
Facilities consolidation 400,000 4,000 186,000 - 210,000
---------- -------- -------- -------- --------
$1,400,000 $302,000 $302,000 $172,000 $624,000
========== ======== ======== ======== ========
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 expenses and cost of sales, respectively, in the
accompanying condensed consolidated statement of operations for Fiscal 2002. In
the third quarter of Fiscal 2002, the Company recorded approximately $750,000 of
income by relieving part of the $1,761,000 provision related to Polaroid
inventory as a result of sales of Polaroid inventory.
During the second quarter of Fiscal 2002, the Company recognized a provision
related to accounts receivable of $960,000 ("Kmart Provision") associated with
Kmart Corporation ("Kmart"), which filed for protection under Chapter 11 of the
U.S. Bankruptcy Code on January 22, 2002. In the third quarter of Fiscal 2002,
the Company recorded a recovery of approximately $288,000 associated with the
sale to a third party of the Kmart account receivable. The initial accounts
receivable provision in the second quarter of Fiscal 2002 and subsequent
recovery in the third quarter of Fiscal 2002 were included in general and
administrative expenses in the accompanying condensed consolidated statements of
operations.
Note 6 - Litigation
-------------------
In April and May 2002, a number of class action complaints were filed against
the Company and certain of its officers in the United States District Court for
the Southern District of Florida by individuals purporting to be shareholders of
the Company.
6
The plaintiffs in these actions seek to act as representatives of a
class consisting of all persons who purchased the Company's common stock during
the period from January 18, 2001 through June 22, 2001, inclusive (the "Class
Period"). The complaints assert, among other things, that the Company made
untrue statements of material fact and omitted to state material facts necessary
to make statements made not misleading in periodic reports it filed with the
Securities and Exchange Commission and in press releases it made to the public
regarding its operations and financial results. The allegations are centered
around claims that throughout the Class Period the Company failed to disclose
that a large portion of its accounts receivable was represented by a delinquent
and uncollectible balance due from then customer, KB Gear Interactive, Inc., and
claims that such failure artificially inflated the price of the Company's common
stock. The complaints seek unspecified damages, interest, attorneys' fees, costs
of suit and unspecified other and further relief from the court. The Company
intends vigorously to defend the lawsuits. These lawsuits are in their earliest
stage and discovery has not yet commenced. Although the Company believes these
lawsuits are without merit, their respective outcomes cannot be predicted, nor
if they are adversely determined, can the ultimate liability of the Company,
which could be material, be ascertained.
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. The award
was recorded as other income and included under the caption other income, net in
the accompanying condensed consolidated statements of operations for the nine
months ended March 30, 2002. As a result of the foregoing, the New Jersey action
instituted by Benun was dismissed with prejudice.
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
operating statement classification of consideration between a vendor and a
retailer. By adopting EITF 00-25, lower sales, lower gross margins and lower
selling expenses are reported as certain variable selling expenses which have
been historically classified as operating expenses are reclassified as a
reduction of net sales. The Company adopted EITF 00-25 in its second quarter of
Fiscal 2002. Accordingly, approximately $435,000 and $663,000 of variable
selling expenses, consisting principally of promotional allowances, were
reclassified as a reduction of net sales, resulting in a corresponding reduction
of gross profit for the quarters ended March 30, 2002 and March 31, 2001,
respectively. The Company reclassified approximately $2,097,000 and $2,922,000
of variable selling expenses, consisting principally of promotional allowances,
for the nine months ended March 30, 2002 and March 31, 2001, respectively, as a
reduction of net sales.
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, 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 indefinite-lived intangible assets and goodwill,
and initiates an annual review of these assets for impairment. Identifiable
intangible assets with determinable, useful lives will continue to be amortized.
In accordance with SFAS No. 142, effective July 1, 2001, the Company ceased
amortization of its remaining net goodwill balances. Intangible assets that have
finite useful lives will continue to be amortized over their useful lives. The
Company is required to perform an impairment test of its existing goodwill based
on a fair value concept within the first six months following adoption of SFAS
No. 142. The Company completed step one of the impairment test under SFAS No.
142, and it is management's assessment that goodwill impairment does not exist.
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.
7
Additionally, the FASB issued Statement of Financial Accounting Standards No.
144, "Accounting for the Impairment or Disposal of Long-Lived Assets" ("FAS
144") during 2001. FAS 144 superseded Statement of Financial Accounting
Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of," and the accounting and reporting
provisions of Accounting Principles Board Opinion No. 30, "Reporting the Results
of Operations--Reporting the Effects of Disposal of a Segment of a Business, and
Extraordinary, Unusual and Infrequently Occurring Events and Transactions," for
the disposal of a segment of a business. FAS 144 also amended Accounting
Research Bulletin No. 51, "Consolidated Financial Statements," to eliminate the
exception to consolidation for a subsidiary for which control is likely to be
temporary. The Company will adopt FAS 144 on June 30, 2002, and expects the
adoption of the standard to have no material impact on its financial condition,
results of operations or cash flows.
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. As a result
of the exchange offer, the Company is required to apply variable accounting for
these stock option grants until the options are exercised, cancelled or expired.
Accordingly, for the quarter and nine months ended March 30, 2002, the Company
incurred approximately $1,169,000, and $2,825,000, respectively, related to
non-cash stock option compensation expense which were included as variable
stock-based compensation expenses in the accompanying condensed consolidated
statements of operations.
Note 9 - Commitment
-------------------
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
as well as an additional $63,000 to match contributions made by members of its
Board of Directors and its employees for a total commitment of $1,063,000 which
was included in general and administrative expenses for the Nine Months Ended
March 2002 in the accompanying condensed consolidated statements of operations.
The Company expects to fund its commitment by the end of Fiscal 2002.
Note 10 - Subsequent Event
--------------------------
In April 2002, the Company uncovered a fraudulent scheme including check forgery
by a now former divisional controller of the Company which resulted in the
embezzlement of approximately $1,250,000 over an eighteen month period ending in
April 2002, the preponderance of which occurred in Fiscal 2002. To date, the
Company's ongoing investigation confirms that the former employee acted alone
and the misappropriated funds have been identified. The Company expects to
recover the full amount of the embezzlement from a combination of insurance
proceeds and assets secured and to be recovered from the individual.
Accordingly, the recovery of approximately $1,250,000 has been recorded and is
included in the accompanying condensed consolidated balance sheet as of March
30, 2002. In addition the Company has recorded under the caption recovery of
operating expenses, net in the accompanying condensed consolidated statement of
operations for the third quarter of Fiscal 2002, approximately $1,150,000
related to the recovery, net of approximately $100,000 of expenses related to
the investigation and recovery efforts. The entire amount of the recovery was
recorded in the third quarter of Fiscal 2002 due to the fact that it is
impractical to determine the impact on Fiscal 2002 quarterly periods. The
embezzled amounts related to the prior fiscal year were not significant.
8
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Results of Operations
---------------------
Effective with its second quarter of the fiscal year ended June 29, 2002
("Fiscal 2002"), the Company adopted Emerging Issues Task Force ("EITF") Issue
No. 00-25, Vendor Income Statement Characterization of Consideration from a
Vendor to a Retailer, which addresses the operating statement classification of
consideration between a vendor and a retailer. Consequently, for all historical
periods presented and for all future periods, the Company will report lower
sales, lower gross margins and lower selling expenses as certain variable
selling expenses which have been historically classified as operating expenses
are reclassified as a reduction of net sales. Accordingly, the Company
reclassified approximately $435,000 and $663,000 of variable selling expenses,
consisting principally of promotional allowances, as a reduction of net
revenues, and a corresponding reduction of gross profit for the third quarter of
Fiscal 2002 and the third quarter of the fiscal year ended June 30, 2001
("Fiscal 2001"), respectively. The Company reclassified approximately $2,097,000
and $2,922,000 of variable selling expenses, consisting principally of
promotional allowances, for the first nine months of Fiscal 2002 and Fiscal
2001, respectively, as a reduction of net sales.
Quarter ended March 30, 2002 compared to the quarter ended March 31, 2001
-------------------------------------------------------------------------
Revenues
--------
Revenues for the third quarter of Fiscal 2002 were approximately $26,422,000, an
increase of approximately $2,627,000, or 11.0%, as compared to revenues for the
third quarter of Fiscal 2001. The increase in sales resulted principally from
increases in sales to new and existing retail sales and distribution ("RSD")
customers partially offset by decreases in sales to original equipment
manufacture ("OEM") 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 third quarter of Fiscal 2002 were
approximately $17,744,000, an increase of approximately $4,900,000, or 38.2%, as
compared to the third quarter of Fiscal 2001. OEM sales for the third quarter of
Fiscal 2002 were approximately $8,678,000, a decrease of approximately
$2,273,000, or 20.8%, as compared to the third quarter of Fiscal 2001.
Sales of the Company's operations in Asia ("Concord Asia") for the third quarter
of Fiscal 2002, excluding FOB Hong Kong sales to its customers in the Americas
and Europe of approximately $8,173,000, were approximately $8,690,000, a
decrease of approximately $2,265,000, or 20.7%, as compared to the third quarter
of Fiscal 2001. The decrease was attributable to lower OEM sales to certain
existing customers including Polaroid Corp. ("Polaroid") and the loss of sales
to a former OEM customer, partially offset by increases in sales to new and
certain existing OEM customers.
Sales of the Company's operations in the United States, Latin America and Canada
("Concord Americas"), which were all RSD sales, for the third quarter of Fiscal
2002, including FOB Hong Kong sales to customers in the Americas, were
approximately $12,739,000, an increase of approximately $2,288,000, or 21.9%, as
compared to the third 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"), which were all
RSD sales, for the third quarter of Fiscal 2002, including FOB Hong Kong sales
to customers in Europe, were approximately $4,993,000, an increase of
approximately $2,604,000, or 109.0%, as compared to the third quarter of Fiscal
2001. This increase was primarily attributable to higher sales of single-use and
digital cameras and increased market share.
9
Gross Profit
------------
Gross profit for the third quarter of Fiscal 2002 was approximately $1,807,000,
and included an approximate $2,250,000 inventory provision principally related
to the rationalization of sub-one megapixel digital inventory comprised of
components and finished goods ("Digital Inventory Provision") and approximately
$750,000 of gross profit related to Polaroid product sales as a result of
utilization of Polaroid inventory ("Polaroid Gross Profit") that had been
previously reserved in the amount of $1,761,000 ("Polaroid Inventory Provision")
in the first quarter of Fiscal 2002 due to Polaroid's filing for protection
under Chapter 11 of the U.S. Bankruptcy Code ("Filing") in October 2001.
Including the Digital Inventory Provision and the Polaroid Gross Profit, gross
profit, expressed as a percentage of sales, increased to 6.8% for the third
quarter of Fiscal 2002 as compared to 1.7% for the third quarter of Fiscal 2001.
This increase in gross profit was attributable to changes in product mix,
favorable pricing and labor and overhead absorption. Product development costs
for the third quarter of Fiscal 2002 and Fiscal 2001 were approximately
$1,788,000 and $1,457,000, respectively.
The Company's product mix, which historically consisted principally of
reloadable film and single use cameras, is expected to continue changing with
the introduction of additional 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 film and single use cameras the
Company has historically sold. Digital products however generate a greater gross
profit per unit than reloadable film 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 pricing
volatility in the marketplace, 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.
Operating Expenses
------------------
Operating expenses, consisting of selling expense, general and administrative
expense, variable stock-based compensation expense and interest expense
increased by approximately $2,172,000, to $7,241,000 for the third quarter of
Fiscal 2002 from approximately $5,069,000 for the third quarter of Fiscal 2001.
Included in general and administrative expenses in the third quarter of Fiscal
2002 was a bad debt recovery in the amount of approximately $288,000 ("Bad Debt
Recovery") associated with the sale to a third party of an account receivable
from Kmart Corporation ("Kmart") in the amount of approximately $960,000 ("Kmart
Provision") that had been reserved in the second quarter of Fiscal 2002, as a
result of Kmart filing for protection under Chapter 11 of the U.S. Bankruptcy
Code ("Filing") on January 22, 2002. Variable stock-based compensation expense
("Stock Compensation Expense") was $1,169,000 ("Third Quarter Stock Option
Expense") for the third quarter of Fiscal 2002 which is related to the variable
accounting treatment accorded certain of the Company's repriced stock options as
a consequence of the Company's exchange offer that expired October 16, 2001. As
a percentage of sales, operating expenses increased to 27.4% for the third
quarter of Fiscal 2002 from 21.3% for the third quarter of Fiscal 2001.
Selling expenses increased by approximately $698,000, or 95.1%, to approximately
$1,432,000 for the third quarter of Fiscal 2002 from approximately $734,000 for
the third quarter of Fiscal 2001. The increase was primarily due to an increase
in certain variable selling expenses. As a percentage of sales, selling expenses
increased to 5.4% for the third quarter of Fiscal 2002 from 3.1% for the third
quarter of Fiscal 2001.
General and administrative expenses increased by approximately $441,000, or
12.1%, to approximately $4,071,000 for the third quarter of Fiscal 2002 from
approximately $3,630,000 for the third quarter of Fiscal 2001. Excluding the Bad
Debt Recovery, general and administrative expenses would have been approximately
$4,359,000 for the third quarter of Fiscal 2002, an increase of $729,000, or
20.1%, compared to the third quarter of Fiscal 2001. This increase was primarily
attributable to compensation expense. As a percentage of sales, general and
administrative expenses increased to 15.4% for the third quarter of Fiscal 2002
from 15.3% for the third quarter of Fiscal 2001. Excluding the Bad Debt Recovery
of approximately $288,000, general and administrative expenses, as a percentage
of sales, would have been 16.5% for the third quarter of Fiscal 2002.
For a discussion of recovery of operating expenses, net, see note 10 to the
condensed consolidated financial statements.
10
Variable stock-based compensation expense was $1,169,000 for the third quarter
of Fiscal 2002 and resulted from variable accounting treatment accorded certain
of the Company's repriced stock options as a consequence of the Company's
exchange offer that expired October 16, 2001. For further discussion, see the
paragraph Exchange Offer under the section Liquidity and Capital Resources.
Interest expense decreased to approximately $569,000 for the third quarter of
Fiscal 2002 from approximately $705,000 for the third quarter of Fiscal 2001.
Interest expense will vary based on the level of short-term borrowings the
Company incurs during the period and fluctuations in interest rates.
Other Income, Net
-----------------
Other income, net was approximately $320,000 and $1,122,000 for the third
quarter of Fiscal 2002 and Fiscal 2001, respectively, a decrease of $802,000.
The decrease was primarily attributable to lower interest income.
Income Taxes
------------
The Company's benefit for income taxes was approximately $617,000 for the third
quarter of Fiscal 2002 compared to a provision of approximately $202,000 for the
third quarter of Fiscal 2001. The recorded benefit in the third quarter was
primarily related to domestic and foreign losses which included the effect of
non-qualified stock option expense before income taxes in the third quarter of
Fiscal 2002 compared to taxable domestic income in the third quarter of Fiscal
2001. In general, the effective income tax rate is largely a function of the
balance between income and loss from domestic and foreign operations.
Net Loss
--------
As a result of the matters described above, the Company had a net loss of
approximately $3,348,000, or $0.12 per share, for the third quarter of Fiscal
2002 as compared to a net loss of approximately $3,737,000, or $0.14 per share,
for the third quarter of Fiscal 2001.
Nine months ended March 30, 2002 compared to the Nine months ended March 31,
2001
--------------------------------------------------------------------------------
Revenues
--------
Revenues for the nine months ended March 30, 2002 ("Nine Months Ended March
2002") were approximately $98,574,000, a decrease of approximately $44,630,000,
or 31.2%, as compared to revenues for the nine months ended March 31, 2001
("Nine Months Ended March 2001"). The decrease in sales resulted principally
from decreases in sales to OEM customers partially offset by increases in sales
to new and existing 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 Nine Months Ended March 2002 were
approximately $68,963,000, an increase of approximately $9,288,000, or 15.6%, as
compared to the Nine Months Ended March 2001. OEM sales for the Nine Months
Ended March 2002 were approximately $29,611,000, a decrease of approximately
$53,918,000, or 64.6%, as compared to the Nine Months Ended March 2001.
Sales of Concord Asia for the Nine Months Ended March 2002, excluding FOB Hong
Kong sales to its customers in the Americas and Europe of approximately
$34,280,000, were approximately $30,232,000, a decrease of approximately
$53,297,000, or 63.8%, as compared to the Nine Months Ended March 2001. The
decrease was due to the loss in Fiscal 2002 of an OEM customer that purchased
digital product in the Nine Months Ended March 2001 and significantly lower
sales to certain OEM customers that purchased single use and reloadable cameras
partially offset by increases in sales to new and existing OEM customers that
purchase digital and film based products.
11
Sales of Concord Americas, which were all RSD sales, for the Nine Months Ended
March 2002, including FOB Hong Kong sales to customers in the Americas, were
approximately $49,575,000, an increase of approximately $9,755,000, or 24.5%, as
compared to the Nine Months Ended March 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 Concord Europe, which were all RSD sales, for the Nine Months Ended
March 2002, including FOB Hong Kong sales to customers in Europe, were
approximately $18,767,000, a decrease of approximately $1,036,000, or 5.2%, as
compared to the Nine Months Ended March 2001. This decrease was primarily
attributable to lower sales of single-use and reloadable cameras.
Gross Profit
------------
Gross profit for the Nine Months Ended March 2002 was approximately $14,878,000,
a decrease of approximately $12,439,000, or 45.5%, as compared to the Nine
Months Ended March 2001. Gross profit, expressed as a percentage of sales,
decreased to 15.1% for the Nine Months Ended March 2002 as compared to 19.1% for
the Nine Months Ended March 2001. The decrease in gross profit as a percentage
of sales was attributable to (i) a Digital Inventory Provision of approximately
$2,250,000 (ii) a net provision related to inventory of approximately $1,011,000
related to Polaroid's Filing and (iii) changes in product mix, pricing pressures
and unfavorable labor and overhead absorption. Product development costs for the
Nine Months Ended March 2002 and the Nine Months Ended March 2001 were
approximately $5,817,000 and $4,674,000, respectively.
Operating Expenses
------------------
Operating expenses, consisting of selling expense, general and administrative
expense, variable stock-based compensation expense, terminated acquisition costs
and interest expense, increased by approximately $5,074,000 to $25,527,000 for
the Nine Months Ended March 2002 from approximately $20,453,000 for the Nine
Months Ended March 2001. Included in general and administrative expense for the
Nine Months Ended March 2002 were certain charges aggregating $3,346,000
comprised of (i) the Kmart Provision, net of the Bad Debt Recovery, of $672,000;
(ii) a charitable contribution that the Company recorded for victims of the
September 11 terrorist attack in the amount of $1,063,000 ("Charitable
Contribution Charge"), and (iii) a provision related to an account receivable of
$1,611,000 associated with Polaroid's Filing ("Polaroid Receivable Provision").
As a percentage of sales, operating expenses increased to 25.9% for the Nine
Months Ended March 2002 from 14.3% for the Nine Months Ended March 2001.
Excluding the charges described in the second preceding sentence aggregating
$3,346,000, and the variable stock based compensation expense of $2,825,000, in
the Nine Months Ended March 2002, and terminated acquisition costs of $800,000
in the first quarter of Fiscal 2001 related to a proposed acquisition that was
not consummated, operating expenses as a percentage of sales would have been
19.6% for the Nine Months Ended March 2002 compared to 13.7% for the Nine Months
Ended March 2001.
Selling expenses decreased by approximately $726,000, or 13.7%, to approximately
$4,586,000 for the Nine Months Ended March 2002 from approximately $5,312,000
for the Nine Months Ended March 2001. The decrease was primarily due to a
decrease in certain variable selling expenses. As a percentage of sales, selling
expenses increased to 4.7% for the Nine Months Ended March 2002 from 3.7% for
the Nine Months Ended March 2001.
General and administrative expenses increased by approximately $3,859,000, or
31.1%, to approximately $16,252,000 for the Nine Months Ended March 2002 from
approximately $12,393,000 for the Nine Months Ended March 2001. Excluding the
Kmart Provision and Bad Debt Recovery, the Charitable Contribution Charge, and
the Polaroid Receivable Provision, general and administrative expenses would
have been approximately $12,906,000 for the Nine Months Ended March 2002, an
increase of $513,000, or 4.1%, compared to the Nine Months Ended March 2001. The
increase was primarily attributable to higher compensation expense and higher
professional fees. As a percentage of sales, general and administrative expenses
increased to 16.5% for the Nine Months Ended March 2002 from 8.7% for the Nine
Months Ended March 2001. Excluding the Kmart Provision and Bad Debt Recovery,
the Charitable Contribution and the Polaroid Receivable Provision which
aggregated $3,346,000, general and administrative expenses, as a percentage of
sales, would have been 13.1% for the Nine Months Ended March 2002.
12
Variable stock-based compensation expense was $2,825,000 for the Nine Months
Ended March 2002, and resulted principally from variable accounting treatment
accorded certain of the Company's repriced stock options as a consequence of the
Company's exchange offer that expired October 16, 2001. For further discussion,
see the paragraph Exchange Offer under the section Liquidity and Capital
Resources.
Interest expense decreased to approximately $1,864,000 for the Nine Months Ended
March 2002 from approximately $1,948,000 for the Nine Months Ended March 2001.
Interest expense will vary as a direct result of the level of short-term
borrowings the Company incurs and fluctuations in interest rates.
Other Income, Net
-----------------
Other income, net was approximately $2,683,000 and $3,640,000 for the Nine
Months Ended March 2002 and the Nine Months Ended March 2001, respectively, a
decrease of $957,000. The decrease was primarily attributable to lower
investment income earned partially offset by an arbitration award to the Company
of approximately $1,200,000 which the Company recorded in October 2001.
Income Taxes
------------
The Company's benefit for income taxes was approximately $645,000 for the Nine
Months Ended March 2002 compared to a tax provision of approximately $1,248,000
for the Nine Months Ended March 2001. The benefit was primarily related to
foreign and domestic losses which included the effect of non-qualified stock
option expense for the Nine Months Ended March 2002. In general, the effective
income tax rate is largely a function of the balance between income and loss
from domestic and foreign operations.
Net (Loss) Income
-----------------
As a result of the matters described above, the Company had a net loss of
approximately $6,170,000, or $0.23 per share, for the Nine Months Ended March
2002 as compared to net income of approximately $9,256,000, or $0.32 per diluted
share, for the Nine Months Ended March 2001.
Liquidity and Capital Resources
-------------------------------
On January 22, 2002, the Securities and Exchange Commission issued an
interpretive release on disclosures related to liquidity and capital resources.
The Company is not aware of factors that are reasonably likely to adversely
affect liquidity trends, other than the risk factors presented in other Company
filings. The Company does not have, or engage in transactions with any special
purpose entities, was not engaged in hedging activities and had no forward
exchange contracts outstanding at March 30, 2002. The Company, in the ordinary
course of business, enters into operating lease commitments, purchase
commitments and other contractual obligations. These transactions are recognized
in the Company's financial statements in accordance with generally accepted
accounting principles in the United States, and are more fully discussed below.
Operating leases- These leases are entered into in the ordinary course of
business (e.g., warehouse facilities, office space and equipment) where the
economic profile is favorable. The effects of outstanding leases are not
material to the Company by reference to both annual cash flow and total
outstanding debt. See Note 12, Commitments and Contingencies, to the
consolidated financial statements included in the Company's Annual Report on
Form 10-K for the fiscal year ended June 30, 2001.
Purchase Commitments - The Company has purchase commitments for materials,
supplies, services, and property, plant and equipment as part of the ordinary
conduct of business. In the aggregate, such commitments are not at prices in
excess of current market and typically do not exceed one year.
13
Other Contractual Obligations - The Company does not have any material financial
guarantees or other contractual commitments that are reasonably likely to
adversely affect liquidity. See the paragraph below, Hong Kong Credit
Facilities, for information about the financial guarantees of the Company.
A related party transaction is discussed in Note 15, Related Party Transactions,
to the consolidated financial statements included in the Company's Annual Report
on Form 10-K for the fiscal year ended June 30, 2001. This transaction does not
materially affect the Company's results of operations, cash flows or financial
condition.
At March 30, 2002, the Company had working capital of approximately $129,871,000
compared to approximately $131,003,000 at June 30, 2001. Cash provided by
operations in the Nine Months Ended March 2002 was approximately $771,000, which
compared to cash used by operations of approximately $229,000 for the Nine
Months Ended March 2001. The changes in cash provided by operating activities
for the Nine Months Ended March 2002 and the Nine Months Ended March 2001
periods were primarily attributable to changes in inventories, accounts payable
and other long term liabilities.
Cash provided by investing activities for the Nine Months Ended March 2002 was
$48,442,000 that was primarily the result of approximately $49,870,000 in
proceeds received by the Company upon the maturity of short-term investments
made in Fiscal 2001. Capital expenditures for the Nine Months Ended March 2002,
were approximately $1,428,000 compared to approximately $6,052,000 for the Nine
Months Ended March 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. It is expected
that capital expenditures on plant and equipment purchases for the Company's
manufacturing facility will increase substantially in the fourth quarter of
Fiscal 2002 compared to the Nine Months Ended March 2002.
Cash used in financing activities was approximately $153,000 for the Nine Months
Ended March 2002, which compared to cash provided by financing activities of
approximately $98,867,000 for the Nine Months Ended March 2001. The decrease was
attributable to the Company's public offering (described more fully below) in
September and October 2000.
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. If the
Company were to redeem the Senior Notes prior to their maturity, payment of an
early redemption fee, the outstanding principal amount and accrued and unpaid
interest on the Senior Notes would be required. At March 30, 2002, the early
redemption fee was 3% of the outstanding principal. The fee decreases to 1% and
0% on July 16, 2002 and July 16, 2003, respectively.
14
Hong Kong Credit Facilities. Concord Camera HK Limited ("Concord HK") has
various revolving credit facilities in place providing an aggregate of
approximately $23,500,000 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 $8,000,000 Accounts Receivable Financing
Facility. The $8,000,000 Accounts Receivable Financing Facility is secured by
certain account receivables of Concord HK and guaranteed by the Company. The
Company also guarantees 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 March 30, 2002, there were
no amounts outstanding under the Hong Kong Credit Facilities.
United Kingdom Credit Facility. In November 1999, a United Kingdom subsidiary of
the Company, obtained a $1,000,000 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. At March 30, 2002, there were no amounts outstanding under the UK
Facility.
United States Credit Facilities. In June 2000, a Concord Camera Corp., U.S.
subsidiary entered into a credit facility ( the "US Facility") with a lender to
provide up to $5,000,000 of unsecured working capital. The US Facility bears
interest at 1.75% above the London Interbank Offer Rate ("LIBOR"). No amounts
were outstanding under the US Facility at March 30, 2002.
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. As a
result of the exchange offer, the Company is now required to apply variable
accounting for these stock option grants until the options are exercised,
cancelled or expire. Accordingly, for the quarter and nine months ended March
30, 2002, the Company incurred approximately $1,169,000 and $2,285,000
respectively, principally related to non- cash stock option compensation expense
which were included under the caption variable stock-based compensation
expenses. Because the determination of variable accounting expense associated
with the repriced stock options is dependent, in part, on the closing stock
price of the Company at the end of each prospective reporting period, it is not
possible to determine the impact, either favorable or unfavorable, on the
Company's financial statements.
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.
15
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.
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.
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, 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.
16
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As a result of its global operating and financial activities, the Company 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 rate or LIBOR 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 statement of operations. As of March
30, 2002, 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.
17
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
See Note 6 to the Condensed Consolidated Financial Statements regarding the
class action lawsuits recently filed against the Company and certain of its
officers.
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
The Company's Annual Meeting of Shareholders was held on January 17, 2002. The
following is a summary of the matters voted on at that meeting.
The shareholders elected each of the Company's nominees to the Board of
Directors. The persons elected to the Board of Directors, and the number of
votes cast for and withheld for each nominee for director, were as follows:
Director For Withheld
-------- --------------- ------------
Ira B. Lampert 19,837,479 2,691,124
Ronald S. Cooper 21,441,883 1,086,720
Morris H. Gindi 21,966,186 562,417
J. David Hakman 21,972,190 556,413
William J. Lloyd 21,966,290 562,313
William J. O'Neill, Jr. 21,942,020 586,583
The shareholders ratified the appointment of Ernst & Young LLP as the Company's
independent auditors for Fiscal 2002 by the following vote: 22,422,708 votes
"For"; 85,001 votes "Against"; and 20,894 abstentions.
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.
10.1 Letter agreement between The Hong Kong and Filed herewith.
Shanghai Banking Corporation Limited and
Concord Camera HK Limited dated November
8, 2001, relating to and amending the Hong
Kong Credit Facility and Factoring Agreement
(b) Reports on Form 8-K
The registrant did not file any reports on Form 8-K during the quarter ended
March 30, 2002.
18
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: March 14, 2002