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 31, 2001
--------------
OR
__ TRANSITION REPORT PURSUANT TO SECTION 13 OF THE SECURITIES EXCHANGE ACT
OF 1934
For the transition period from _________ to ___________
Commission file number 0-17038
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Concord Camera Corp.
--------------------
(Exact name of registrant as specified in its charter)
New Jersey 13-3152196
------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4000 Hollywood Blvd. Suite 650N, Hollywood, Florida 33021
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(Address of principal executive offices) (Zip Code)
954/331-4200
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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 27,317,208 shares as of May 5, 2001
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Index
Concord Camera Corp. and Subsidiaries
Page No.
--------
Part I. Financial Information
Item 1. Financial Statements (Unaudited)
Condensed consolidated balance sheets as of March 31, 2001 and July 1, 2000 2
Condensed consolidated statements of income and loss for the three and the 3
nine months ended March 31, 2001 and April 1, 2000
Condensed consolidated statements of cash flows for the nine months ended 4
March 31, 2001 and April 1, 2000
Notes to condensed consolidated financial statements 5
Item 2. Management's Discussion and Analysis of Financial Condition 8
and Results of Operations
Item 3. Quantitative and Qualitative Disclosure About Market Risk 14
Part II. Other Information
Item 1. Legal Proceedings 15
Item 4. Submission of Matters to a Vote of Security Holders 15
Item 6. Exhibits and Reports on Form 8-K 15
1
PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
Concord Camera Corp. and Subsidiaries
Condensed Consolidated Balance Sheets
March 31, 2001 July 1, 2000
-------------- ------------
(Unaudited) (Note 1)
Assets
Current Assets:
Cash and cash equivalents $ 116,976,425 $ 24,390,294
Accounts receivable, net 29,663,650 33,570,047
Inventories 37,333,997 31,603,147
Prepaid expenses and other current assets 6,081,917 7,374,719
------------- -------------
Total current assets 190,055,989 96,938,207
Property, plant and equipment, net 24,563,118 22,810,021
Goodwill, net 3,772,302 3,561,770
Other assets 15,290,024 10,693,442
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Total assets $ 233,681,433 $ 134,003,440
============= =============
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable $ 19,182,429 $ 25,510,625
Accrued expenses 8,228,427 12,788,653
Short-term debt 5,286,734 2,190,263
Current portion of obligations under capital leases 706,909 1,252,967
Income taxes payable 1,398,839 2,024,157
Other current liabilities 278,073 571,706
------------- -------------
Total current liabilities 35,081,411 44,338,371
Senior notes 14,907,144 14,891,071
Obligations under capital leases, net of current portion -- 1,221,128
Other long-term liabilities 10,501,505 7,262,903
------------- -------------
Total liabilities 60,490,060 67,713,473
Commitments and contingencies
Stockholders' equity:
Common stock, no par value, 100,000,000 shares
authorized; 28,859,734 and 23,825,734 shares issued as
of March 31, 2001 and July 1, 2000, respectively 139,781,687 42,145,256
Paid-in capital 2,625,828 2,625,828
Retained earnings 34,941,462 25,685,258
Notes receivable arising from common stock purchase
agreements (20,466) (29,237)
------------- -------------
177,328,511 70,427,105
Less: treasury stock, at cost, 1,542,526 shares (4,137,138) (4,137,138)
------------- -------------
Total stockholders' equity 173,191,373 66,289,967
------------- -------------
Total liabilities and stockholders' equity $ 233,681,433 $ 134,003,440
============= =============
See accompanying notes.
2
Concord Camera Corp. and Subsidiaries
Condensed Consolidated Statements of Income and Loss
(Unaudited)
For the three months ended For the nine months ended
------------------------------ ------------------------------
March 31, 2001 April 1, 2000 March 31, 2001 April 1, 2000
-------------- ------------- -------------- -------------
Net sales $ 24,458,191 $ 32,717,048 $ 146,126,216 $ 118,477,347
Cost of products sold 23,382,413 24,340,818 115,886,748 86,388,923
------------- ------------- ------------- -------------
Gross profit 1,075,778 8,376,230 30,239,468 32,088,424
Selling expenses 1,397,538 2,308,566 8,234,101 7,819,386
General and administrative expenses 3,629,964 3,536,665 12,393,050 11,073,944
Terminated acquisition costs -- -- 800,207 --
Interest expense 704,903 783,537 1,948,293 2,525,206
Other income, net (1,122,045) (548,000) (3,640,392) (775,398)
------------- ------------- ------------- -------------
Income (loss) before income taxes (3,534,582) 2,295,462 10,504,209 11,445,286
Provision for income taxes 202,274 179,680 1,248,005 915,680
------------- ------------- ------------- -------------
Net income (loss) $ (3,736,856) $ 2,115,782 $ 9,256,204 $ 10,529,606
============= ============= ============= =============
Basic earnings (loss) per share $ (.14) $ .10 $ .36 $ .48
============= ============= ============= =============
Diluted earnings (loss) per share $ (.14) $ .09 $ .32 $ .43
============= ============= ============= =============
Weighted average
common shares outstanding-basic 27,243,801 22,009,870 25,942,837 21,921,176
Dilutive effect of stock options -- 2,520,886 2,570,665 2,360,226
------------- ------------- ------------- -------------
Weighted average
common shares outstanding-diluted 27,243,801 24,530,756 28,513,502 24,281,402
============= ============= ============= =============
See accompanying notes.
3
Concord Camera Corp. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
For the nine months ended
------------------------------
March 31, 2001 April 1, 2000
-------------- -------------
Cash flows from operating activties:
Net income $ 9,256,204 $ 10,529,606
Adjustments to reconcile net income
to net cash (used in) provided by operating activities:
Depreciation and amortization 4,170,245 2,940,267
Officers' notes forgiven, related interest income
and stock option expense 363,602 596,038
Changes in operating assets and liabilities:
Accounts receivable 3,906,399 (861,960)
Inventories (5,730,852) (6,901,328)
Prepaid expenses and other current assets 1,292,819 (773,276)
Other assets (1,357,991) (2,737,190)
Accounts payable (6,328,196) 870,719
Accrued expenses (4,560,245) 3,152,849
Income taxes payable (625,318) 914,407
Other current liabilities (667,688) 368,987
Other long-term liabilities 51,992 2,975,779
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Total adjustments (9,485,233) 545,292
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Net cash (used in) provided by operating activities (229,029) 11,074,898
------------- -------------
Cash flows from investing activities:
Purchases of property, plant and equipment (6,051,702) (6,360,444)
------------- -------------
Net cash used in investing activities (6,051,702) (6,360,444)
------------- -------------
Cash flows from financing activities:
Net (repayments) borrowings under short-term debt
agreements 2,997,619 (1,292,651)
Repayments under long-term debt agreements -- (2,025,664)
Principal repayments under capital lease obligations (1,767,186) (1,474,722)
Purchases of treasury stock -- (758,626)
Net proceeds from notes receivable arising from common
stock purchase agreements -- 1,437,830
Net proceeds from issuance of common stock 97,636,429 707,565
------------- -------------
Net cash provided by (used in) financing activities 98,866,862 (3,406,268)
------------- -------------
Net increase in cash and cash equivalents 92,586,131 1,308,186
Cash and cash equivalents at beginning of period 24,390,294 30,706,761
------------- -------------
Cash and cash equivalents at end of period $ 116,976,425 $ 32,014,947
============= =============
See accompanying notes.
4
CONCORD CAMERA CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------------
March 31, 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 nine-month period ended March 31, 2001 are not necessarily
indicative of the results that may be expected for the fiscal year ending June
30, 2001. The balance sheet at July 1, 2000 has been derived from the audited
financial statements at that date, but does not include all of the information
and footnotes required by accounting principles generally accepted in the United
States for complete financial statements. For further information, refer to the
consolidated financial statements and footnotes thereto included in the
Company's Annual Report on Form 10-K for the fiscal year ended July 1, 2000.
Concord Camera Corp. (the "Company") operates on a worldwide basis and its
results may be adversely or positively affected by fluctuations of various
foreign currencies against the U.S. Dollar, specifically, the Canadian Dollar,
German Mark, British Pound Sterling, French Franc and Japanese Yen. The majority
of the Company's foreign subsidiaries' sales and inventory purchases are made or
denominated in the U.S. Dollar. Accordingly, the U.S. Dollar is the functional
currency. However, certain sales to customers and purchases of certain
components needed to manufacture cameras are made in local currency, thereby
creating exposure to fluctuations in foreign currency exchange rates. The impact
of foreign currency exchange transactions is reflected in the statement of
income. The Company continues to analyze the benefits and costs associated with
hedging against foreign currency fluctuations.
Note 2 - Cash
-------------
The Company has a cash management program that provides for the investment of
excess cash balances into cash equivalents, which are highly liquid investments
with a maturity of three months or less that are readily convertible into known
amounts of cash. These investments consist primarily of U.S. treasury bills,
money market funds, and U.S. federal agency securities.
Note 3 - Inventories
--------------------
Inventories are comprised of the following:
March 31, 2001 July 1, 2000
-------------- ------------
Raw materials and components $30,175,202 $22,116,287
Finished goods 7,158,795 9,486,860
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$37,333,997 $31,603,147
=========== ===========
5
Note 4 - Supplemental Disclosures of Cash Flow Information:
-----------------------------------------------------------
For the nine months ended
-----------------------------
March 31, 2001 April 1, 2000
-------------- -------------
Cash paid for interest $1,439,236 $2,143,143
========== ==========
Cash paid for income taxes $1,910,262 $ 177,942
========== ==========
Note 5 - Public Offering
------------------------
On September 26, 2000, the Company sold, pursuant to an underwritten public
offering, 3,900,000 shares of its common stock at a price of $23.00 per share.
Pursuant to an over-allotment option granted to the underwriters, the Company
sold an additional 585,000 shares of common stock on October 3, 2000 at a price
of $23.00 per share. The net proceeds of the offering to the Company were
approximately $96,505,000, after offering costs and underwriting fees of
approximately $6,650,000. This amount will be used to repay outstanding
indebtedness including capital leases, for capital expenditures and for general
corporate and strategic purposes, including working capital and investments in
new technologies, product lines and complementary businesses.
Note 6 - Terminated Acquisition Costs
-------------------------------------
Terminated acquisition costs of approximately $800,000, for the nine months
ended March 31, 2001 were related to a proposed acquisition that was not
consummated. Negotiations regarding this acquisition were terminated in
September, 2000.
Note 7 - Litigation and Settlements
-----------------------------------
Jack C. Benun. On November 18, 1994, the Company filed a demand for arbitration
in New Jersey for money damages in excess of $1.5 million against Jack C. Benun
("Benun"), its former chief executive officer who was discharged for cause in
Fiscal 1995. This action was taken due to Benun's failure to fully compensate
the Company for damages it sustained as a result of Benun's breaching his
employment obligations, his fiduciary obligations and perpetrating frauds upon
the Company, including the misappropriation of funds from the Company. Benun
submitted a counterclaim in which he alleged, among other things, wrongful
termination of his employment and denial of benefits by the Company. On August
24, 1999, the arbitrator upheld the propriety of Concord's termination for cause
of Benun. The arbitrator found that Benun perpetrated frauds on the Company by
diverting and embezzling Company monies. The Company pursued damage claims
against Benun related to the frauds and embezzlement. On March 19, 2001, the
Arbitrator rendered an award and opinion (the "award and opinion"). In the award
and opinion the Arbitrator: (i) awarded the Company $1,133,246 in damages; such
damages included certain fees which the Company previously paid to various
attorneys, (ii) denied certain other claims made by the Company including its
request for prejudgment interest on the award, and (iii) denied each of Benun's
counterclaims except that Benun was awarded $100,000 for repayment of a loan
made by Benun to the Company, $93,000 related to a stipulated interest amount on
said loan, and interest accruing from February 15, 2001 with respect to said
loan. All such amounts are subject to set off against the $1,133,246 that was
awarded to the Company. During the arbitration proceedings Benun claimed damages
in amounts in excess of $12 million. All amounts in excess of the aforesaid
$100,000 loan and stipulated interest were denied.
On April 20, 2001, Benun instituted an action against Concord Camera in the
Superior Court of New Jersey Law Division Monmouth County (Docket No.
MON-L-184501). The action seeks to modify the aforesaid award to the Company
from the amount of $1,133,246 to an amount of $1,103,277. The action
additionally seeks to permit Benun to offset the aforesaid loan and interest
amount, in the aggregate amount of $193,000, against the amount awarded to the
Company. In addition to the foregoing, the action seeks damages for an alleged
failure to provide Benun with alleged agreed upon fees for allegedly
guaranteeing Concord debt and also seeks damages relating to an alleged failure
by Concord to provide Benun with option rights relevant to 50,000 shares
(100,000 shares, post-split) of Concord stock allegedly promised to Benun. The
Complaint filed by Benun contains no statement of damages claimed; however,
Benun has issued a press release alleging that his claims together are worth
more than $4 million. The Company is vigorously contesting the action and
believes Benun's claims to be without merit. The claims of Benun for alleged
guarantee amounts and stock options were presented in the aforesaid arbitration.
The Arbitrator in that case ruled that the aforesaid claims were not
appropriately before the Arbitrator. The Company has not accrued for any
recovery from Benun in this matter.
6
Fuji. On December 30, 1997, the Company commenced in the United States District
Court of the Southern District of New York (the "Court") an action against Fuji
seeking to enforce the terms of a Settlement Agreement between the Company and
Fuji (the "Settlement Agreement") and to restrain Fuji from terminating the
Settlement Agreement. Under the terms of the Settlement Agreement, the Company
had been granted a worldwide (subject to certain geographic limitations),
non-exclusive license to use certain Fuji intellectual property in connection
with the manufacture and sale of single use cameras. Termination of the license
would have had a material adverse effect on the Company's single use camera
business if Fuji's patents were found to be valid and infringed by the Company's
single use products. Effective January 1, 2001, the Company settled its pending
litigation with Fuji and entered into a new twenty-year license agreement with
Fuji. Under the new license agreement, Fuji granted to Concord a worldwide
(excluding Japan until January 1, 2005) non-exclusive license to use Fuji's
portfolio of patents and patent applications related to single-use cameras. In
consideration of the license, Concord has agreed to pay a license fee and
certain royalty payments to Fuji. Accordingly, Concord has recorded as an
intangible asset equal to the present value of the future payments due to Fuji
of approximately $4.0 million under the caption other assets, and a
corresponding liability under the caption other long-term liabilities in the
accompanying condensed consolidated balance sheet as of March 31, 2001. The
intangible asset is being amortized over the life of the agreement.
The Company is involved from time to time in routine legal matters incidental to
its business. In the opinion of the Company's management, the resolution of such
matters will not have a material adverse effect on its financial position or
results of operations.
Note 8 - Contingency
--------------------
The Company has been working closely with a customer to ensure collection of
approximately $15,777,000 of a past due account receivable. The status of this
receivable will continue to be evaluated as collection and collection efforts
proceed. Although the Company has not recorded any reserve against this
receivable at this time, there can be no assurance that in the future a portion,
or the entire amount outstanding, of this receivable will be deemed
uncollectible and warrant a reserve. If management determines that a reserve
needs to be recorded, it could have a material adverse impact on the Company's
results of operations and financial position.
Note 9 - Recent Accounting Pronouncements
-----------------------------------------
In December 1999, the SEC issued Staff Accounting Bulletin No. 101 ("SAB 101"),
"Revenue Recognition in Financial Statements." SAB 101 summarizes the
requirements that must be met in order to recognize revenue and provides
guidance for disclosure of revenue recognition policies. In June 2000, the SEC
issued SAB No. 101B which delays the implementation date of SAB 101 until no
later than the fourth quarter of Fiscal 2001. The Company has assessed the
provisions of SAB 101 and does not expect that the adoption of SAB 101 will have
a material effect on its financial position or results of operations.
7
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
Results of Operations
---------------------
Three months ended March 31, 2001 compared to the three months ended April 1,
2000
-----------------------------------------------------------------------------
Sales
-----
Total net sales for the three months ended March 31, 2001 and April 1, 2000 were
approximately $24,458,000 and $32,717,000, respectively, a decrease of
approximately $8,259,000, or 25.2%. The decrease in net sales for the three
months ended March 31, 2001 compared to the three months ended April 1, 2000
resulted from lower sales in the original equipment manufacturing ("OEM")
business, partially offset by an increase in sales in the retail sales and
distribution ("RSD") business. OEM sales for the three months ended March 31,
2001 and April 1, 2000 were approximately $11,411,000 and $25,012,000,
respectively, a decrease of approximately $13,601,000, or 54.4%. This decrease
was primarily attributable to OEM customers ordering fewer traditional film
based products somewhat offset by an increase in digital product sales compared
to the same prior year period. RSD customer sales for the three months ended
March 31, 2001 and April 1, 2000 were approximately $13,047,000 and $7,705,000,
respectively, an increase of approximately $5,342,000, or 69.3%. The increase in
RSD sales is primarily attributable to sales to existing RSD customers of both
traditional film based and digital products, and to a lesser extent, sales to
new RSD customers. The sales mix between OEM and RSD customers may vary somewhat
in the short term from historical trends due to the product mix and significant
differences in average unit prices between digital products and traditional film
based products the Company sells to its OEM and RSD customers.
Sales for the Company's operations in Asia ("Concord Asia") for the three months
ended March 31, 2001 and April 1, 2000, were approximately $11,444,000 and
$25,012,000, respectively, a decrease of approximately $13,568,000, or 54.2%.
The decrease in sales for Concord Asia was due to lower sales to OEM customers.
Sales to customers of the Company's operations in the United States, Latin
America and Canada ("Concord Americas") for the three months ended March 31,
2001, and April 1, 2000, including FOB Hong Kong sales to Concord Americas
customers, were approximately $10,655,000 and $2,598,000, respectively, an
increase of approximately $8,057,000, or 310.1%. The increase was primarily due
to increased market penetration, and successful implementation of new programs
with new and existing customers for new and existing products.
Sales to the Company's customers of Concord Camera (Europe) Limited, Goldline
(Europe) Limited, Concord Camera GmbH, and Concord Camera France S.A.R.L.
("Concord Camera Europe") for the three months ended March 31, 2001, and April
1, 2000, including FOB Hong Kong sales to Concord Europe customers, were
approximately $2,359,000 and $5,107,000, respectively, a decrease of
approximately $2,748,000, or 53.8%. This decrease was primarily due to decreased
sales to existing customers compared to the same prior year period, in part due
to the current economic conditions in the United Kingdom.
Gross Profit
------------
Gross profit, expressed as a percentage of sales, decreased to 4.4% for the
three months ended March 31, 2001 from 25.6% for the three months ended April 1,
2000. This decrease was primarily the result of unfavorable absorption of
manufacturing overhead and labor utilization as well as startup costs related to
new digital and other traditional film based products. Overall pricing pressures
in a weakened retail environment and increased product engineering and
development costs were also factors contributing to lower gross profits for the
three months ended March 31, 2001 compared to the same prior year period. The
trends of retail product pricing pressures and upward pressure on cost of
products sold as a percentage of sales are expected to continue.
8
Sales for the three months ended March 31, 2001 included revenues from digital
products, which are sold at significantly higher unit prices, but generate lower
gross profits as a percentage of sales, compared to the traditional film based
products the Company has historically sold. The Company's historical product
mix, which consisted entirely of traditional film based products, is expected to
continue changing with the introduction of more digital products in the future,
and consequently, gross profits as a percentage of sales are anticipated to be
lower compared to historical gross profits as a percentage of sales. However,
since digital products are expected to generate greater sales revenue and gross
profit on a per unit basis, as compared to the traditional film based products
Concord has sold historically, average revenue and gross profit amounts per unit
can be expected to increase as digital products contribute to a greater
percentage of the product mix. As digital products continue to contribute to a
greater proportion of the Company's manufacturing product mix, Concord's overall
business will become more exposed to greater gross profit fluctuations due to
possible digital component shortages. Since component availability fluctuates
from time to time and is subject to lead time and other constraints, it could
possibly limit net profit growth and might have a negative impact on sales and
gross margins in the foreseeable future.
Included in costs of products sold, were product development costs of
approximately $1,457,000 for the three months ended March 31, 2001 as compared
to approximately $1,179,000 for the three months ended April 1, 2000. The
increase of $278,000 resulted primarily from product development costs
associated with new digital technologies and products.
Expenses
--------
As a percentage of sales, operating expenses, consisting of selling, general and
administrative and interest expense, increased to 23.4% for the three months
ended March 31, 2001 from 20.3% for the three months ended April 1, 2000.
Operating expenses decreased to approximately $5,733,000 for the three months
ended March 31, 2001 from approximately $6,629,000 for the three months ended
April 1, 2000, a decrease of $896,000, or 13.5%.
Selling expenses decreased to approximately $1,398,000, or 5.7% of net sales,
for the three months ended March 31, 2001 compared to approximately $2,308,000,
or 7.1% of net sales, for the three months ended April 1, 2000. The decrease of
$910,000 was primarily attributable to lower variable selling expenses related
to lower sales volumes slightly offset by higher costs associated with sales
salaries and commissions.
General and administrative expenses increased to approximately $3,630,000, or
14.8% of net sales, for the three months ended March 31, 2001 compared to
approximately $3,537,000, or 10.8% of net sales, for the three months ended
April 1, 2000. The increase of $93,000 was primarily attributable to higher
professional fees, and higher costs associated with the Company's infrastructure
partially offset by lower salaries and bonuses.
Interest expense decreased to approximately $705,000, or 2.9% of net sales, for
the three months ended March 31, 2001 compared to approximately $784,000, or
2.4% of net sales, in the three months ended April 1, 2000 as a result of lower
debt levels during the three months ended March 31, 2001 compared to the three
months ended April 1, 2000.
Other Income, Net
-----------------
Other income, net was approximately $1,122,000 and $548,000 for the three months
ended March 31, 2001 and April 1, 2000, respectively. Other income, net
primarily consists of interest income, partially offset by net foreign exchange
losses, directors' fees, and certain public relations costs. The increase is
primarily attributable to higher interest income for the three months ended
March 31, 2001 as compared to the same prior year period.
Income Taxes
------------
The Company's provision for income taxes increased to approximately $202,000 for
the three months ended March 31, 2001 from $179,000 for the three months ended
April 1, 2000. The increase was primarily related to increased domestic income
before income taxes. In general, the effective income tax rate is largely a
function of the balance between income from domestic and foreign operations.
Currently, Concord's foreign operations taken as a whole are effectively taxed
at a higher rate than those in the United States due to the utilization of
domestic operating loss carryforwards.
Net Income
----------
As a result of the matters described above, the Company had a net loss of
approximately $3,737,000, or $0.14 per share, for the three months ended March
31, 2001, as compared to net income of approximately $2,116,000, or $0.09 per
diluted share, for the three months ended April 1, 2000.
9
Nine months ended March 31, 2001 compared to the nine months ended April 1,
2000
----------------------------------------------------------------------------
Sales
-----
Total net sales for the nine months ended March 31, 2001 and April 1, 2000 were
approximately $146,126,000 and $118,477,000, respectively, an increase of
approximately $27,649,000, or 23.3%. The increase in net sales for the nine
months ended March 31, 2001 compared to the nine months ended April 1, 2000
resulted from increases in sales to both OEM and RSD customers. OEM sales for
the nine months ended March 31, 2001 and April 1, 2000 were approximately
$85,821,000 and $81,226,000, respectively, an increase of approximately
$4,595,000, or 5.7%. This increase is primarily attributable to sales of new
products, including digital cameras, to new and existing OEM customers, and to a
lesser extent, sales of existing products to existing OEM customers. RSD
customer sales for the nine months ended March 31, 2001 and April 1, 2000 were
approximately $60,305,000 and $37,251,000, respectively, an increase of
approximately $23,054,000, or 61.9%. The increase in sales is primarily
attributable to sales to existing customers, and to a lesser extent, sales to
new customers.
Sales for Concord Asia for the nine months ended March 31, 2001 and April 1,
2000, were approximately $85,911,000 and $81,253,000, respectively, an increase
of approximately $4,658,000, or 5.7%. The increase in sales for Concord Asia was
due to higher sales to OEM customers.
Sales for Concord Americas for the nine months ended March 31, 2001, and April
1, 2000, including FOB Hong Kong sales to Concord Americas customers, were
approximately $40,550,000 and $20,553,000, respectively, an increase of
approximately $19,997,000, or 97.3%. The increase was primarily due to increased
market penetration, and successful implementation of new programs with new and
existing customers for new and existing products.
Sales for Concord Europe for the nine months ended March 31, 2001, and April 1,
2000, including FOB Hong Kong sales to Concord Europe customers, were
approximately $19,665,000 and $16,671,000, respectively, an increase of
approximately $2,994,000, or 18.0%. This increase was primarily due to increased
sales to both existing and new customers.
Gross Profit
------------
Gross profit, expressed as a percentage of sales, decreased to 20.7% for the
nine months ended March 31, 2001 from 27.1% for the nine months ended April 1,
2000. This decrease was primarily the result of unfavorable absorption of
manufacturing overhead and labor utilization as well as startup costs related to
new digital and other traditional film based products. Overall pricing pressures
in a weakened retail environment and increased product engineering and
development costs were also factors contributing to lower gross profits. The
trends of retail product pricing pressures and upward pressure on cost of
products sold as a percentage of sales are expected to continue.
Sales for the nine months ended March 31, 2001 included revenues from digital
products, which are sold at significantly higher unit prices, but generate lower
gross profits as a percentage of sales, compared to the traditional film based
products the Company has historically sold. The Company's historical product
mix, which consisted entirely of traditional film based products, is expected to
continue changing with the introduction of more digital products in the future,
and consequently, gross profits as a percentage of sales are anticipated to be
lower compared to historical gross profits as a percentage of sales. However,
since digital products are expected to generate greater sales revenue and gross
profit on a per unit basis, as compared to the traditional film based products
Concord has sold historically, average revenue and gross profit amounts per unit
are expected to increase as digital products contribute to a greater percentage
of the product mix. As digital products continue to contribute to a greater
proportion of the Company's manufacturing product mix, Concord's overall
business will become more exposed to greater gross profit fluctuations due to
possible digital component shortages. Since component availability fluctuates
from time to time and is subject to lead time and other constraints, it could
possibly limit net profit growth and might have a negative impact on sales and
gross margins in the foreseeable future.
10
The increased proportion of RSD sales for the nine ended March 31 2001, which
was primarily attributable to increased FOB Hong Kong sales to Concord Americas
and Concord Europe customers compared to the prior year period, resulted in
lower gross profits as a percentage of sales due to pricing pressures that
resulted from a weakened retail environment and softer consumer demand.
Included in costs of products sold, were product development costs of
approximately $4,674,000 for the nine months ended March 31, 2001 as compared to
approximately $3,567,000 for the nine months ended April 1, 2000. The increase
of $1,107,000 related primarily to product development costs associated with new
digital technologies and products.
Expenses
As a percentage of sales, operating expenses, consisting of selling, general and
administrative, terminated acquisition costs and interest expense, decreased to
16.0% for the nine months ended March 31, 2001 from 18.1% for the nine months
ended April 1, 2000. Operating expenses increased to approximately $23,375,000
for the nine months ended March 31, 2001 from approximately $21,418,000 for the
nine months ended April 1, 2000, an increase of $1,957,000, or 9.1%.
Selling expenses increased to approximately $8,234,000, or 5.6% of net sales,
for the nine months ended March 31, 2001 compared to approximately $7,819,000,
or 6.6% of net sales, for the nine months ended April 1, 2000. The increase was
primarily attributable to increases in sales related salaries and commissions,
freight costs and travel and entertainment partially offset by a decrease in
promotional allowances.
General and administrative expenses increased to approximately $12,393,000, or
8.5% of net sales, for the nine months ended March 31, 2001 compared to
approximately $11,074,000, or 9.3% of net sales, for the nine months ended April
1, 2000. The increase of $1,319,000 was the result of the Company continuing to
build its infrastructure to support its growth.
Terminated acquisition costs of approximately $800,000, for the nine months
ended March 31, 2001 related to a proposed acquisition that was not consummated.
Negotiations regarding this acquisition were terminated in September, 2000.
Interest expense decreased to approximately $1,948,000, or 1.3% of net sales,
for the nine months ended March 31, 2001 compared to approximately $2,525,000,
or 2.1% of net sales, in the nine months ended April 1, 2000 as a result of
lower debt levels during the nine months ended March 31, 2001.
Other Income, Net
-----------------
Other income, net was approximately $3,640,000 and $776,000 for the nine months
ended March 31, 2001 and April 1, 2000, respectively. Other income, net
primarily consists of interest income, and to a lesser extent net foreign
exchange gains partially offset by directors' fees, and certain public relations
costs. The increase is primarily attributable to higher interest income for the
nine months ended March 31, 2001 compared to the same prior year period.
Income Taxes
------------
The Company's provision for income taxes increased to approximately $1,248,000
for the nine months ended March 31, 2001 from approximately $916,000 for the
nine months ended April 1, 2000. The increase was primarily related to increased
domestic income before income taxes. In general, the effective income tax rate
is largely a function of the balance between income from domestic and foreign
operations. Currently, Concord's foreign operations taken as a whole are
effectively taxed at a higher rate than those in the United States due to
domestic operating loss carryforwards.
Net Income
----------
As a result of the matters described above, the Company had net income of
approximately $9,256,000, or $0.32 per diluted share, for the nine months ended
March 31, 2001, as compared to net income of approximately $10,530,000, or $0.43
per diluted share, for the nine months ended April 1, 2000.
11
Liquidity and Capital Resources
-------------------------------
At March 31, 2001, the Company had working capital of $154,975,000 as compared
to $52,600,000 at July 1, 2000. The increase in working capital was primarily
attributable to the net proceeds of approximately $96,505,000 the Company
received from a public offering in September and October 2000. Cash used by
operating activities was approximately $229,000 for the nine months ended March
31, 2001 compared to cash provided by operating activities of $11,075,000 for
the nine months ended April 1, 2000. The changes in cash provided by operating
activities were primarily attributable to changes in accounts receivable,
accounts payable and accrued expenses
The Company has been working closely with a customer to ensure collection of
approximately $15,777,000 of a past due account receivable. The status of this
receivable will continue to be evaluated as collection and collection efforts
proceed. Although the Company has not recorded any reserve against this
receivable at this time, there can be no assurance that in the future a portion,
or the entire amount outstanding, of this receivable will be deemed
uncollectible and warrant a reserve. If management determines that a reserve
needs to be recorded, it could have a material adverse impact on the Company's
results of operations and financial position.
Capital expenditures for the nine months ended March 1, 2001 and April 1, 2000
were approximately $6,052,000 and $6,360,000, respectively, and related
primarily to plant and equipment purchases for the manufacturing facility
located in the People's Republic of China.
Cash provided by financing activities was $98,867,000 for the nine months ended
March 31, 2001 compared to cash used of $3,406,000 for the nine months ended
April 1, 2000. The increase in cash for the nine months ended March 31, 2001 was
primarily attributable to a public offering (more fully discussed below)
completed in September and October, 2000.
Senior Notes Payable. On July 30, 1998, the Company consummated a private
placement of $15,000,000 of senior notes. The notes bear interest at 11.0%, and
mature on July 15, 2005. Interest payments are due quarterly. The indenture
governing the notes contains certain restrictive covenants relating to, among
other things, incurrence of additional indebtedness and dividend and other
payment restrictions affecting the Company and its subsidiaries. The indenture
also includes an early redemption fee, currently at 5% of the outstanding
principal, which decreases 2% annually, every July 16, commencing in 2001.
Hong Kong Credit Facilities. A Company subsidiary, Concord Camera HK Limited
("Concord HK") has various revolving credit facilities in place providing an
aggregate of approximately $33,500,000 in borrowing capacity. Certain of the
revolving credit facilities are denominated in Hong Kong dollars. The revolving
credit facilities are comprised of 1) an $11,000,000 Import Facility, 2) a
$2,600,000 Packing Credit and Export Facility, 3) a $1,900,000 Foreign Exchange
Facility and 4) an $18,000,000 Accounts Receivable Financing Facility. The
$18,000,000 Accounts Receivable Financing Facility is secured by certain
accounts receivables of Concord HK and guaranteed by the Company. A significant
portion of the remaining $15,500,000 of borrowing capacity is also guaranteed by
the Company. Availability under the Accounts Receivable Financing Facility is
subject to advance formulae based on Eligible Accounts Receivable and all the
credit facilities are subject to certain financial ratios and covenants. At
March 31, 2001, $2,287,000 were outstanding under these facilities.
United Kingdom Credit Facility. A United Kingdom subsidiary of the Company, has
a revolving credit facility in place which provides approximately $1,000,000 of
borrowing capacity. The facility is secured by substantially all of the assets
of the subsidiary, and is principally utilized for working capital needs. There
were no amounts outstanding under the facility as of March 31, 2001.
Concord Americas Credit Facilities. Concord Camera Corp. and a U.S. subsidiary,
Concord Keystone Sales Corp., each entered into credit facilities (collectively,
the "US Facilities") with lenders that provide Concord Keystone Sales Corp. and
Concord Camera Corp. with up to $5,000,000 and $2,500,000, respectively, of
unsecured working capital. There were $3,000,000 outstanding under the US
Facilities at March 31, 2001.
12
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, the Company sold an additional 585,000 shares of common stock at a
price of $23.00 per share. The net proceeds of the offering to the Company were
$96,505,000, after offering costs and underwriting fees of $6,650,000. This
amount will be used to repay outstanding indebtedness including capital leases,
for capital expenditures and for general corporate and strategic purposes,
including working capital and investments in new technologies, product lines and
complementary businesses. The net proceeds are currently invested in cash
equivalents.
Stock Repurchase Plan. In February 2001, the Company adopted a 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 to date, but is evaluating several options related to the
repurchase of shares of common stock.
Future Cash Commitments. Management believes that anticipated cash flow from
operations, amounts available under its credit facilities and the proceeds from
the offering will be sufficient to fund its operating cash needs for the
foreseeable future.
The Company is evaluating various growth opportunities which could require
significant funding commitments. The Company has from time to time held, and
continues to hold, discussions and negotiations with (i) companies that
represent potential acquisition or investment opportunities, (ii) potential
strategic and financial investors who have expressed an interest in making an
investment in or acquiring the Company, (iii) potential joint venture partners
looking toward formation of strategic alliances that would broaden the Company's
product base or enable the Company to enter new lines of business and (iv)
potential new and existing OEM customers where the design, development and
production of new products, including certain new technologies, would enable the
Company to expand its existing business, and enter new markets outside its
traditional business including new ventures focusing on wireless connectivity
and other new communication technologies. There can be no assurance any
definitive agreement will be reached regarding any of the foregoing, nor does
management believe such agreements are necessary for successful implementation
of the Company's strategic plans.
Forward-Looking Statements
The statements contained in this report that are not historical facts are
"forward-looking statements" (as such term is defined in the Private Securities
Litigation Reform Act of 1995), which can be identified by the use of
forward-looking terminology such as: "estimates," "projects," "anticipates,"
"expects," "intends," "believes," "plans," or the negative thereof or other
variations thereon or comparable terminology, or by discussions of strategy that
involve risks and uncertainties. The Company's actual results could differ
materially from those anticipated in such forward-looking statements as a result
of certain factors including, but not limited to, those discussed in the
Company's most recent Annual Report filed with the SEC on Form 10-K and the
factors set forth under the caption "Risk Factors" in the Company's Prospectus
dated September 21, 2000, filed with the SEC. Management wishes to caution the
reader that these forward-looking statements, such as statements regarding
development of the Company's business, the Company's anticipated capital
expenditures, projected profits and other statements contained in this report
regarding matters that are not historical facts, are only estimates or
predictions. No assurance can be given that future results will be achieved.
Actual events or results may differ materially as a result of risks facing the
Company or actual results differing from the assumptions underlying such
statements. In particular, expected revenues could be adversely affected by
production difficulties or economic conditions negatively affecting the market
for the Company's products. Obtaining the results expected from the introduction
of the Company's new products will require timely completion of development,
successful ramp-up of full-scale production on a timely basis and customer and
consumer acceptance of those products. In addition, the Company's OEM agreements
require an ability to meet high quality and performance standards, successful
implementation of production at greatly increased volumes and an ability to
sustain production at greatly increased volumes, as to all of which there can be
no assurance. There also can be no assurance that products under development
will be successfully developed or that once developed such products will be
commercially successful.
13
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company, as a result of its global operating and financial activities, is
exposed to changes in interest rates and foreign currency exchange rates which
may adversely affect its results of operations and financial position. In
seeking to minimize the risks and/or costs associated with such activities, the
Company manages exposures to changes in interest rates and foreign currency
rates through its regular operating and financing activities.
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 with the
remainder of the borrowings of a short-term nature typically subject to variable
interest rates based on a prime rate plus 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. The
Company's hedging activities were immaterial and as of March 31, 2001 there were
no forward exchange contracts outstanding. The Company continues to analyze the
benefits and costs associated with hedging against foreign currency
fluctuations.
14
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
-----------------
The lawsuit between the Company and Fuji, described in Note 7 to the Condensed
Consolidated Financial Statements, was voluntarily dismissed with prejudice on
February 26, 2001.
See Note 7 to the Condensed Consolidated Financial Statements regarding
developments in the matter between the Company and Jack C. Benun.
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
The Company's Annual Meeting of Shareholders was held on January 18, 2001. 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 22,289,396 4,436,816
Eli Arenberg 25,835,943 890,269
Ronald S. Cooper 25,840,898 885,314
Morris H. Gindi 25,842,698 883,514
Joel L. Gold 25,842,806 883,406
J. David Hakman 25,842,566 883,646
Kent M. Klineman 25,838,949 887,263
William J. Lloyd 25,843,848 882,364
The proposed amendment to the Company's Incentive Plan, to increase the number
of shares of common stock authorized for issuance under the plan from 6,000,000
to 8,000,000, was not approved. The results of the vote on the proposal were as
follows: 8,475,089 votes "For"; 11,161,173 votes "Against"; 169,430 abstentions;
and 6,920,520 not voted.
The shareholders ratified the appointment of Ernst & Young LLP as the Company's
independent auditors for Fiscal 2001 by the following vote: 26,363,352 votes
"For"; 342,542 votes "Against"; and 20,318 abstentions.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
No. Description Method of Filing
----------- ----------------
3.1 Certificate of Incorporation, as Incorporated by reference to the Company's
amended through May 9, 2000 annual report on Form 10-K for the year
ended July 1, 2000.
3.2 Restated By-Laws, as amended Incorporated by reference to the Company's
through December 21, 2000 quarterly 30, 2000. report on Form 10-Q for
the quarter ended December
15
(b) Reports on Form 8-K
The registrant did not file any reports on Form 8-K during the quarter ended
March 31, 2001. However, on April 2, 2001, the registrant filed a report under
Item 5 - Other Events on Form 8-K reporting the arbitrator's March 19, 2001
award and opinion in the action between the registrant and Jack C. Benun.
16
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: May 10, 2001
17