UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 2001
Commission File No. 0-17038
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 Boulevard, Presidential Circle -
6th Floor, North Tower,
Hollywood, Florida 33021
(Address of principal executive offices) (Zip Code)
(954) 331-4200
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, no par value per share
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
---- ------
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein and will not be contained, to the best
of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
As of August 2, 2001, the aggregate market value of the Common Stock (based upon
the high and low trading prices) held by non-affiliates of the Company was
approximately $141,941,256.
As of August 2, 2001, the number of shares outstanding of the Company's Common
Stock was 27,414,208.
DOCUMENTS INCORPORATED BY REFERENCE
See Exhibit Index -- Page 43
PART I
Unless the context indicates otherwise, when used in this report, "we," "us,"
"our," "Concord" and the "Company" refer to Concord Camera Corp. and its
subsidiaries. Beginning in Fiscal 1999, the Company changed its fiscal year to
end on the Saturday closest to June 30. Fiscal 2001 refers to the Fiscal Year
ended June 30, 2001, Fiscal 2000 refers to the Fiscal Year ended July 1, 2000,
and Fiscal 1999 refers to the Fiscal Year ended July 3, 1999. Prior to 1999, the
Company's fiscal year was the twelve-month period ended June 30. References to
"fiscal year" incorporate this usage.
All information in this report gives effect to a two-for-one stock split
effective on April 14, 2000 to shareholders of record on March 27, 2000.
Forward-Looking Statements
This report and the information incorporated by reference include statements
that are "forward-looking statements" within the meaning of the safe harbor
provisions of The Private Securities Litigation Reform Act of 1995. Some of the
forward-looking statements can be identified by the use of forward-looking words
such as "believes," "expects," "may," "will," "should," "seeks," "intends,"
"plans," "estimates," or "anticipates" or the negative of those words or other
comparable terminology. Forward-looking statements are not historical facts but
instead represent only our present belief regarding future events, many of
which, by their nature, are inherently uncertain and involve risks and
uncertainties. A number of important factors could cause actual results to
differ, perhaps materially, from the anticipated results indicated in the
forward-looking statements. For a discussion of some of the factors that could
cause actual results to differ, please see the discussion under "Risk Factors"
contained in this report. Any forward-looking statements contained in this
report represent our 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 our estimates as of any subsequent date. While we may elect to
update forward-looking statements at some point in the future, we specifically
disclaim any obligation to do so, even if our estimates change.
Item 1. The Business.
Photography Market Overview
There are four main categories of cameras within the photography market:
o Single use cameras -- Single use cameras are sold preloaded with film and
battery and are designed to be used only once. After use, the consumer
returns the entire camera to the photo processor. The processor then
extracts the film and either disposes of the camera carcass or returns it
for recycling. According to the Photo Marketing Association (the "PMA"), on
a unit basis, single use cameras account for about 80% of all cameras sold
worldwide, but we estimate this segment accounts for less than 30% of
amateur camera industry revenues.
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o Instant cameras -- Instant cameras provide the advantage of instant
photographs, but the cost per print is substantially higher than 35mm and
Advanced Photo System ("APS") cameras. There is also a difference in the
quality of prints produced by instant cameras. On a unit basis, instant
cameras account for about 7% of all cameras sold in the United States,
according to the PMA.
o Digital cameras -- A digital camera uses an electronic sensor (versus
silver halide film) to electronically capture an image, which is then stored
in a memory device. Digital cameras allow for instantaneous viewing, and
images can easily be downloaded to a computer for manipulation, reproduction
and storage. According to International Data Corporation ("IDC"),
approximately 15 million digital cameras were shipped worldwide in 2000 (a
104% increase in the number of units shipped as compared to 1999) generating
business of approximately $6.7 billion.
o 35mm and APS cameras -- This category includes essentially all other
(non-single use) cameras that use silver halide film. Film formats include
both 35mm and APS (24mm). From 1996 through 1999, the number of units sold
in this category experienced a compound annual growth of 6.5% in the United
States, according to the PMA.
Market Trends
We expect to capitalize on a number of trends within the image capture industry,
including the following:
o Growth of Single Use Cameras. Single use cameras are inexpensive, easy to
use and deliver high quality photographs. From 1996 through 2000, the number
of single use cameras sold in the United States grew at a compound annual
rate of 22.5%, according to the PMA, and we expect that it will continue to
grow at similar rates.
o Growth of Digital Photography. Digital photography is one of the fastest
growing areas of consumer electronics. According to IDC, worldwide digital
camera shipments grew at a compound rate of approximately 150% per year from
1999 through 2000, and are projected to grow at a compound annual rate of
approximately 30% over the next four years with shipments expected to reach
38.5 million units in 2005. Despite their relatively recent acceptance in
the consumer market, digital cameras have already surpassed instant cameras,
single lens reflex cameras ("SLRs") and traditional APS cameras in market
value. We are well positioned to address this market, with a design team
focused on the development of digital image capture devices and one of the
largest clean room facilities in the world dedicated to the manufacture of
digital cameras. In Fiscal 2001, we completed four digital camera projects.
Our design teams are currently engaged in the development of additional
digital projects that we plan to bring to market this fiscal year.
o New Digital Image Capture Devices. In a clear departure from silver halide
photography, digital imaging enables images to be displayed and used in ways
that were previously
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impossible. Device manufacturers have begun to incorporate image capture
devices into cellular phones, personal digital assistants, laptop computers
and security monitoring devices. We completed projects for two such devices
in Fiscal 2001, the Concord Eye Q(TM) Ir and the Pocket PC digital camera,
and have established relationships with several additional key partners in
the electronic device market to pursue additional opportunities in this
market.
o Outsourcing Trend by Photography Original Equipment Manufacturers
("OEMs"). Much like other manufacturing sectors of the economy, the
photography industry has accelerated the pace of outsourcing its
manufacturing activities to independent contract manufacturers.
Our Company
We design, develop, manufacture and sell on a worldwide basis high quality,
popularly priced, easy-to-use image capture products. Our products include
digital image capture devices, 35mm and APS reloadable and single use cameras,
and instant cameras. We believe we are the fourth largest manufacturer of single
use cameras in the world (behind Eastman Kodak Company ("Kodak"), Fuji Photo
Film Co. Ltd. ("Fuji") and Konica Corporation). By investing significant funds
in our design, development, engineering and manufacturing capabilities, we have
positioned ourselves to capitalize on the industry trend to outsource the
design, development and manufacture of all types of image capture devices. As a
consequence, we now develop new products, including digital image capture
devices and innovative electro, optical and mechanical devices, both for our own
account and in conjunction with our OEM customers and some of our key retail
customers. We serve as a contract manufacturer of developed and co-developed
products for our OEM customers, and we also sell our own branded and private
label versions of many of those products incorporating certain of the
co-developed technology.
We manufacture products in the People's Republic of China ("PRC"). Our
manufacturing facility, together with three employee dormitories we lease,
comprise in excess of 600,000 square feet. We have operated in the PRC since
1984. Our manufacturing capabilities and facilities in the PRC are key
components of our low cost of production. Our Hong Kong management team, many of
whom live in the PRC, oversees manufacturing activities. Our products are
created, designed, developed and engineered principally in design centers in
Hong Kong, the PRC and the United States.
We have evolved from a manufacturer and distributor of cameras to a leading
contract manufacturer of image capture products with strong retail distribution.
At the same time we have developed and manufacture a full line of lower priced
digital cameras. Average revenue per unit from our digital products is
significantly higher than from our reloadable and single use camera products. In
Fiscal 2001, we completed four digital camera development projects and our
design team is currently engaged in the development of additional digital
projects. The experience gained from these development projects should enable us
to compete effectively for supply contracts with companies desiring to offer low
cost digital camera solutions.
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Our Growth Strategy
We intend to enhance our position as a leader in contract manufacturing while
continuing to expand our retail sales and distribution business. Our growth
strategy includes the following key elements:
o Obtain additional business from our existing OEM customers. Since Fiscal 1995,
when we adopted the strategy of positioning ourselves as an innovative designer,
developer and manufacturer of high quality, low priced products, we have
captured OEM business from several of the world's largest film, camera and
imaging companies, including Agfa-Gevaert AG ("Agfa"), Kodak, Ferrania S.p.A.
and Ferrania USA, Inc. (formerly part of Imation, Inc.) ("Ferrania") and
Polaroid Corporation ("Polaroid"). We continue to invest in product development
to increase business from our existing OEM customers.
o Develop new OEM relationships. We intend to leverage our existing
relationships and our strong capabilities in engineering, design and
manufacturing to establish new OEM relationships. In Fiscal 2001, we entered
into new OEM relationships with two leading global communication and technology
companies, Hewlett Packard Company ("Hewlett Packard") and Nokia Mobile Phones
Ltd. ("Nokia"). We also intend to attract new digital image capture OEM
customers by exploiting our expertise in designing and manufacturing digital
image capture devices for leading global communication and technology companies.
o Differentiate ourselves from other contract manufacturers. We will continue to
differentiate ourselves from our competitors by providing OEM customers with the
dedicated design and development expertise of our experienced engineers at our
facilities in Hollywood, Florida, Hong Kong and the PRC, as well as our
advanced, low-cost manufacturing capabilities.
o Continue to expand our retail and distribution business. We continue to
globally expand our retail sales and distribution business by increasing
customers, product listings, retail segments and sales volumes through the
continued introduction of new product lines and models, many of which are the
result of our development and co-development programs with our OEM customers.
Our retail customers include Argos, Boots, K-Mart, Target, Walgreens, Eckerd and
Wal-Mart. We continue to invest in our internal sales and marketing capabilities
to expand our retail business.
o Pursue strategic relationships and acquisitions. When appropriate, we intend
to seek strategic relationships with leading companies in our industry, as well
as acquisitions that will help us further expand our product mix and
distribution channels and enhance our retail competitive position. As an
example, in the first quarter of Fiscal 2001, we licensed certain digital image
capture and enhancement technology from Hewlett Packard and entered into a
strategic alliance with Agilent Technologies, Inc. to develop certain imaging
solutions.
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Products
We design, develop, manufacture and sell image capture products. Our products
include digital image capture devices, 35mm and APS reloadable and single use
cameras, and instant cameras. We often serve as a contract manufacturer of
developed and co-developed products for our OEM customers. We also sell our own
branded and private label versions of many of those products incorporating the
developed and co-developed technology.
We manufacture digital image capture devices, 35mm and APS reloadable and single
use cameras, and instant cameras. Our Company manufactures and assembles
products in the PRC both as a contract manufacturer on an OEM basis and for
direct sale under our labels and under private label brand names. New products
are, and we expect they will continue to be, designed and developed both
independently and on a co-development basis with existing and potential OEM
customers.
Over the next several years, digital cameras are expected to represent a
material portion of our sales as well as an increasing portion of worldwide
camera sales.
Concord's expenditures for product design and development increased from $3.1
million in Fiscal 1997 to more than $6.4 million in Fiscal 2001. We anticipate
product development costs will increase further in Fiscal 2002. The increase
would be principally attributable to the development, design and production of
new digital image capture devices, in some instances incorporating both digital
and wireless technology.
OEM Relationships
We have developed products and long-term relationships with some of the world's
largest and most successful film, camera, global communication and technology
companies.
In Fiscal 2001, we had two OEM customers each of whose purchases represented in
excess of 10% of our total sales: (i) KB Gear Interactive, Inc. ("KB Gear")
(14.3% of sales); and (ii) Kodak (12.3% of sales). In Fiscal 2001, our OEM
customers accounted for approximately 54.1% of our total sales.
We are no longer designing, developing or manufacturing products for, or selling
products to, KB Gear. During the fourth quarter of Fiscal 2001, we wrote off the
remaining outstanding accounts receivable balance of approximately $15.8 million
that was owed to us by KB Gear. See "Risk Factors" under the caption
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" below.
Our OEM customers include the following:
Agfa. In Fiscal 1996 under a co-development agreement with Agfa, we partnered
the development of the world's first two-format APS single use cameras. We
continue to manufacture, on an exclusive basis, various single use cameras for
Agfa under a multi-year OEM contract that expires in January 2002. The parties
do not intend to renew this contract. Purchases by Agfa, after the expiration of
the contract, would be made under individual purchase orders.
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Ferrania. We first started producing single use cameras for this OEM customer in
Fiscal 1995, under a contract with Imation (now Ferrania S.p.A.). Products
developed under this contract include our various daylight and flash single use
camera models. Although this contract expired on June 30, 2001, we continue to
manufacture various single use cameras for Ferrania under individual purchase
orders.
Hewlett Packard. In Fiscal 2001, we partnered with Hewlett Packard for the
design, development and manufacture of a digital camera that plugs into Hewlett
Packard's Jornada personal digital assistant, allowing easy image transfer to
the Internet or a computer. Shipments of this camera began in April 2001.
Hewlett Packard markets this camera as the imager for the Jornada.
Kodak. We were awarded a long-term supply agreement for a traditional motorized
APS camera in Fiscal 1997. Shipments of the camera began in the first quarter of
Fiscal 1998. We retained the right to sell these cameras under our brand names,
and shipments of our branded versions began in the first quarter of Fiscal 1999.
On March 23, 2000, we announced a new three-year contract with Kodak to
manufacture APS single use cameras as an OEM. We believe that single use cameras
are Kodak's fastest-growing product line within non-digital photography.
Nokia. In Fiscal 2001, we entered into a contract with Nokia for the design,
development and manufacture of a digital camera that allows the wireless
transfer of images, using infra-red technology, to the Nokia 9210 Communicator
and a personal computer using Microsoft's Windows 2000. Shipments of this camera
began in the fourth quarter of Fiscal 2001. We retained the right to sell these
cameras to others.
Polaroid. Previously we entered into a co-development and long-term supply
agreement to co-design and manufacture an instant single use camera and an
instant manual camera for Polaroid. Shipments of these products commenced in
Fiscal 1999.
According to recent press releases and filings made by Polaroid with the
Securities and Exchange Commission, Polaroid is experiencing financial
difficulties and its auditors have issued a "going concern" opinion to Polaroid.
Future OEM Relationships
We believe we are positioned to become one of the prime beneficiaries of an
outsourcing trend in the reloadable, single use and digital image capture device
markets, including wireless transmission and Internet connectivity. By investing
significant funds in development, design, engineering and manufacturing
capabilities, we have become a high quality, low cost contract manufacturer. In
addition, OEM customers are increasingly searching for development and
co-development partners that can provide OEMs with value added assistance in the
design, development and testing of innovative technologies. Our ability to serve
not only as a reliable,
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quality contract manufacturer but also as a valuable strategic partner positions
us for continued growth in our OEM business.
We are negotiating with existing and potential OEM customers for the
development, design and production of a number of new products, including
cameras and image capture devices incorporating digital, wireless connectivity
and communications technology. We target potential OEM customers with: (a) an
established brand name; (b) existing channels of distribution; (c) multiple
product outsourcing potential (reloadable, single use and digital cameras); and
(d) products complementary to our manufacturing and value-added skills.
We have completed our transition from a manufacturer and distributor of cameras
to a contract manufacturer of image capture products with strong retail
distribution. Our product development capabilities have enabled us to offer
proprietary assistance in design and product development to OEM customers.
Direct Sales to Retailers
We make direct sales to retailers on a worldwide basis through offices and/or
representatives in the United States, Latin America and Canada ("Concord
Americas"), offices in the United Kingdom, France and Germany ("Concord
Europe"), and offices in Hong Kong ("Concord Asia"). Concord Asia is also
involved in OEM sales as well as FOB Hong Kong sales to large retail customers
in the Americas and Europe. We market our products to retailers under the
following brand names:
o Concord(R) o Argus(R)
o Keystone(R) o Apex(R)
o Le Clic(R) o Fun Shooter(R)
o Goldline(R) o Concord Eye Q(TM)
Our worldwide direct sales customers include the following major discount, drug
and retail chains: Argos, Boots, Eckerd, K-Mart, Target, Walgreens and Wal-Mart.
We also sell our products to other consumer product companies who use our
products as premiums in connection with their product sales.
We have in-house sales personnel who make a majority of our direct sales to
retailers. To assist our in-house staff, we also have approximately eight
non-affiliated sales agents who serve specific geographic areas. Sales agents
generally receive commissions ranging from 1.0% to 3.0% of net sales, depending
on the type of customer, and may act as selling agents for products of other
manufacturers.
Our direct sales to retailers represented approximately $84.1 million in Fiscal
2001 and $54.9 million in Fiscal 2000. This increase was fueled by the
introduction of new products and marketing programs, some of which resulted from
our development and co-development
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programs with OEM customers. In Fiscal 2001, sales to Walgreens accounted for
approximately 14.1% of our total sales.
Competition
The image capture industry is highly competitive. As a manufacturer and
distributor of high quality low cost image capture devices, we encounter
substantial competition from a number of firms, many of which have longer
operating histories, more established markets and more extensive facilities than
we have. Many of our competitors have greater resources than we have or may
reasonably be expected to have in the foreseeable future. Our competitive
position is dependent upon our ability to continue to manufacture in the PRC.
Licensing Activities
We are one of a limited number of companies licensed by Fuji to manufacture and
remanufacture single use cameras. Single use cameras accounted for 57.5% of our
Fiscal 2001 sales. We have 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. The license extends until the later of February
26, 2021 or the expiration of the last of the licensed Fuji patents to expire.
In June 1999, the International Trade Commission ("ITC") banned the unlicensed
importation of new and reloaded single use cameras into the United States due to
patent infringement. The Court of Appeals for the Federal Circuit recently
upheld the ban on new single use cameras and on reloaded single use cameras not
originally sold in the United States by Fuji or its licensees or not reloaded in
a prescribed manner.
Beginning in Fiscal 1995, we entered into license agreements with Hallmark
Licensing, Inc., as agent for Binney & Smith Properties, Inc. Under the
agreements, we licensed certain trademarks regarding Crayola and certain
associated marks, trade names and logos for use in various jurisdictions with
single use and reloadable 35mm and APS format cameras. The last of these
agreements will expire on December 31, 2001.
Manufacturing
We conduct all of our manufacturing in the PRC. Our vertically integrated
manufacturing includes, but is not limited to, plastic injection molding of
lenses and other parts, stamping and machining of metal parts, use of surface
mount technology, bonding, assembly and quality inspection.
Manufacturing Facilities. In Fiscal 1996 we began constructing a new
manufacturing facility on a previously acquired site in the PRC. During Fiscal
1999 we expanded our facilities by increasing our manufacturing and related
dormitory facilities to over 600,000 square feet. In Fiscal 1999 the China
Authorization Center of Import & Export Commodity accredited our PRC
manufacturing facilities as an ISO 9002 certified facility. We have invested in
excess of $25 million in capital expenditures and improvements at the facility
over the last four years.
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In February 2000 we opened a new production facility dedicated to digital image
capture devices. Two thirds of this new facility is comprised of class 10,000
clean rooms where the ambient air particle count is controlled and special gowns
are worn by all personnel to maintain a high level of cleanliness. The new
facility, located on the site of our PRC manufacturing operations, has a fully
trained and dedicated on-site staff including operators, engineers (mechanical,
electrical and optical) and production managers and supervisors. We have other
technical and manufacturing personnel available on site and design and
development engineers located at the Company's nearby Hong Kong facility.
Equipment and Raw Materials. We own or lease the tools and equipment necessary
to manufacture most of the components used in our products. Numerous
manufacturers and suppliers located in the Far East and other parts of the world
supply us with components, materials and film that we do not manufacture. Raw
materials and components that we purchase include film, batteries, glass lenses,
plastic resins, metal, packaging and electronic component parts.
Component procurement for digital cameras is more complex than for reloadable
and single use cameras. Availability, delays in procuring, and price
fluctuations of the components for digital cameras, which may be outside our
control, could adversely impact our business, results of operations and
financial condition.
PRC Agreement. Our operations and profitability are substantially dependent upon
our manufacturing and assembly activities. Our current processing agreement with
the PRC entities expires in October 2006. We intend to continue to expand our
operations in the PRC, but there can be no assurance we will be able to do so.
Trademarks and Patents
We own trademarks which include, but are not limited to, the CONCORD(R),
KEYSTONE(R), FUN SHOOTER(R), LE CLIC(R), GOLDLINE(R) and APEX(R) names for
cameras sold in the United States and numerous foreign countries, the ARGUS(R)
name in numerous foreign countries, and we have applied for the trademark
CONCORD EYE Q(TM) in the United States and numerous foreign countries. We own
numerous patents, certain of which are used in our current products. We have
applied for, and will continue to apply for, in the United States and foreign
countries, patents to protect the inventions and technology developed by or for
the Company. We do not believe our competitiveness and market share are
dependent on the ultimate disposition of our patent applications.
Restructuring
Beginning in the fourth quarter of Fiscal 2001, we announced and began
implementing restructuring programs in an effort to enhance operating
efficiencies and reduce costs. These objectives are to be achieved through
workforce reductions, facility consolidations and other cost-saving measures
throughout our organization. As part of these programs, we have reduced our
manufacturing workforce in the PRC from approximately 6,000 to approximately
4,000 and
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anticipate reducing our worldwide workforce (outside of the PRC) by
approximately 71 employees by the end of Fiscal 2002.
Employees
As of August 1, 2001, we had 190 employees, approximately 56% of whom were
located in Hong Kong and the PRC. None of our employees are represented by
collective bargaining agreements.
Pursuant to our agreements with governmental agencies in the PRC, those
governmental agencies provide us with approximately 4,000 workers at our
facilities in the PRC. We believe our ongoing relationship with these workers is
good.
Item 2. Properties.
In Hollywood, Florida, we lease our principal office space which consists of
approximately 15,000 square feet. We also lease our domestic warehouse in Fort
Lauderdale, Florida, which consists of approximately 13,700 square feet, about
825 square feet of which is office space. These leases expire on September 30,
2010 and January 31, 2009, respectively.
In Hong Kong, we hold under a lease expiring in 2047 one floor and lease four
floors of business and warehouse space. In the United Kingdom, we own an 11,000
square foot building on a one-half acre parcel. We also lease warehouse and/or
office space in France, Canada and Germany in connection with the activities of
our subsidiaries in these jurisdictions.
In the PRC, we own a manufacturing facility in the Longgang District of
Shenzhen, and we lease three employee dormitories and a cafeteria. Pursuant to
land use agreements entered into with certain PRC governmental agencies, we
obtained the title and rights to use approximately eight acres of land for
factory buildings, dormitories and related ancillary buildings. Under the land
use agreement, we have the right to use the land through the year 2038. At the
end of the term, a PRC governmental agency will own the facilities and we will
have the right to lease the land and improvements thereon at then prevailing
lease terms.
Item 3. Legal Proceedings.
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
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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: (a) awarded the Company $1,133,246 in damages;
such damages included certain fees which the Company previously paid to various
attorneys, (b) denied certain other claims made by the Company including its
request for prejudgment interest on the award, and (c) 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 claims of 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 the Company in the
Superior Court of New Jersey Law Division Monmouth County (Docket No.
MON-L-184501). The action: (a) seeks to modify the aforesaid award to the
Company from the amount of $1,133,246 to an amount of $1,103,277; (b) seeks to
permit Benun to set off the aforesaid loan and interest amount, in the aggregate
amount of $193,000, against the amount awarded to the Company; and (c) seeks
damages for (i) an alleged failure to provide Benun with alleged agreed upon
fees for allegedly guaranteeing Concord debt and (ii) 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 issued a
press release alleging that his claims together are worth more than $4 million.
The Company has been contesting and continues to vigorously contest the action
and believes Benun's claims to be without merit. The claims of Benun for alleged
guarantee amounts and stock options (c(i) and c(ii) above) were presented in the
aforesaid arbitration. The Arbitrator in that case ruled that the aforesaid
claims were not appropriately before the Arbitrator.
On June 22, 2001, the Court denied an application made on behalf of Benun to
modify the arbitration award to reduce the amount awarded to Concord and
therefore denied the relief sought as described at (a) and (b) in the prior
paragraph. On August 31, 2001, the Court granted Concord's motion for partial
summary judgment, thereby dismissing Benun's claims for option rights and
guarantee fees, which claims Benun had reported to be worth more than $4
million, and therefore denied the relief sought as described in c(i) and c(ii)
of the prior paragraph. Concord does not know whether Benun will appeal any
court decision made. Various nonmaterial limited issues, primarily related to
post judgment interest, remain before the Court. The Company has not accrued any
income with respect to the award in this matter.
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.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
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PART II
Item 5. Market for Company's Common Equity and Related Shareholder Matters.
Our common stock has been quoted on the Nasdaq National Market under the symbol
"LENS" since July 12, 1988. The following table shows, for the periods
indicated, the high and low sales prices per share of our common stock as
reported by the Nasdaq National Market for the period from July 1, 1999 through
June 30, 2001.
All share prices set forth below have been adjusted to reflect the two-for-one
split of our common stock effected on April 14, 2000.
Quarter Ended High Low
------------- ---- ----
June 30, 2001............................... $10.07 $5.05
March 31, 2001.............................. $20.00 $6.38
December 30, 2000........................... $34.50 $13.75
September 30, 2000.......................... $27.88 $18.69
July 1, 2000................................ $26.81 $12.94
April 1, 2000............................... $28.72 $10.85
January 1, 2000............................. $11.38 $4.25
October 2, 1999............................. $4.84 $2.75
The closing price of our common stock on the Nasdaq National Market on June 29,
2001 was $5.90 per share. As of June 30, 2001, there were approximately 1,049
shareholders of record of our common stock.
The Company has never paid cash dividends and does not presently intend to pay
any cash dividends.
-13-
Item 6. Selected Financial Data.
Fiscal Year Ended
--------------------------------------------------------
June 30, July 1, July 3, June 30, June 30,
2001 2000 1999 1998 1997
-------- ------- ------ ------- --------
(Dollars in thousands except per share data)
STATEMENT OF OPERATIONS DATA:
Net sales $183,413 $173,158 $118,418 $102,663 $65,747
Cost of product sold 152,598 126,148 86,664 74,771 48,722
------- ------- ------ ------ ------
Gross profit 30,815 47,010 31,754 27,892 17,025
Operating expenses 48,408 31,045 23,593 21,892 17,864
------ ------ ------ ------ ------
Operating (loss) income (17,593) 15,965 8,161 6,000 (839)
Other income, net (4,892) (883) (441) (517) (123)
----- --- --- --- ---
(Loss) income before taxes (12,701) 16,848 8,602 6,517 (716)
(Benefit) provision for taxes (931) (2,751) 893 504 117
--- ----- --- --- ---
Net (loss) income ($11,770) $19,599 $7,709 $6,013 ($833)
======== ======= ====== ====== =====
Basic (loss) earnings per share* ($0.45) $0.89 $0.35 $0.27 ($0.04)
===== ===== ===== ===== ======
Diluted (loss) earnings per share* ($0.45) $0.81 $0.33 $0.26 ($0.04)
===== ===== ===== ===== ======
BALANCE SHEET DATA:
Working capital $131,003 $52,600 $37,447 $20,813 $13,994
======== ======= ====== ====== ======
Total assets $213,666 $134,003 $96,647 $72,082 $53,088
======== ======== ======= ======= =======
Total debt $15,416 $19,555 $29,735 $15,599 $11,197
======= ======= ======= ======= =======
Total stockholders' equity $154,337 $66,290 $42,696 $36,105 $29,502
======== ======= ======= ======= =======
* Per share data for all periods presented has been restated to reflect a
two-for-one stock split in Fiscal 2000. For further discussion see Note 9 to the
Consolidated Financial Statements.
-14-
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
The following discussion and analysis should be read in conjunction
with the Fiscal 2001 consolidated financial statements and the related notes
thereto. Except for historical information contained herein, the matters
discussed below are forward-looking statements made pursuant to the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995. Such
statements involve risks and uncertainties, including but not limited to
economic, governmental, political, competitive and technological factors
affecting Concord's operations, markets, products, prices and other factors
discussed elsewhere in this report and the documents filed with the Securities
and Exchange Commission ("SEC"). These factors may cause results to differ
materially from the statements made in this report or otherwise made by or on
behalf of Concord.
OVERVIEW
We design, develop, manufacture and sell on a worldwide basis high
quality, popularly priced, easy-to-use image capture products. Our products
include digital image capture devices, and 35 mm and APS reloadable and single
use cameras and instant cameras. We manufacture and assemble our products in the
PRC for both direct sales under Company brand names and on an OEM basis.
Over the last several years, we have evolved from a manufacturer and
distributor of cameras to a contract manufacturer of image capture products with
strong retail distribution. We have improved the quality and capacity of our
manufacturing operations to a world class standard and have acquired additional
core technology, design and engineering expertise which has, in turn, enabled us
to improve product performance and picture quality and to respond quickly to
customer requirements. These improvements allow us to obtain business from
leading film, camera and imaging companies.
We make direct sales to retailers on a worldwide basis through offices
and/or representatives in the United States, Latin America and Canada ("Concord
Americas"), offices in the United Kingdom, France and Germany ("Concord
Europe"), and offices in Hong Kong ("Concord Asia"). Concord Asia is involved in
all OEM sales as well as FOB Hong Kong sales to large retail customers in the
Americas and Europe. These divisions market our products under the brand names
Concord(R), Concord EyeQ(TM), Keystone(R), Le Clic(R), Argus(R), Apex(R),
Goldline(R) and Fun Shooter(R).
As a result of our strategy over the last several years, we have
diversified our sales mix. Direct sales to our RSD customers accounted for
approximately 45.9% of sales for Fiscal 2001 compared to approximately 60.7% of
sales during Fiscal 1996 and sales to OEM customers represented 54.1% of sales
in Fiscal 2001 compared to 39.3% of sales in Fiscal 1996. The evolution of our
OEM and branded products into digital and other image capture devices has
diversified our product base. In Fiscal 2001, our first year selling digital
products, such products accounted for approximately 20.3% of total sales.
-15-
Sales of single use cameras accounted for approximately 57.5% of total sales in
Fiscal 2001, compared to approximately 65.2% in Fiscal 1996.
For Fiscal 2001, our OEM and RSD sales were approximately $99,286,000
and $84,127,000, respectively. Included in our RSD sales for Fiscal 2001, were
FOB Hong Kong sales of Concord Asia to its customers in the Americas of
approximately $33,398,000 and to its customers in Europe of approximately
$13,600,000.
We expect to continue to obtain additional business from our current
customers and establish new OEM and RSD relationships by positioning ourselves
as an innovative designer, developer and manufacturer of high quality, low cost
image capture products.
RESULTS OF OPERATIONS
Fiscal 2001 Compared to Fiscal 2000
Revenues
Revenues for Fiscal 2001 were approximately $183,413,000, an increase
of approximately $10,255,000, or 5.9%, as compared to revenues for Fiscal 2000.
The increase in sales resulted principally from increases in sales to new and
existing RSD customers partially offset by a decrease in sales to OEM customers.
The increase in RSD sales was primarily due to increased sales to new and
existing RSD customers of digital and single-use camera products partially
offset by a decrease in sales of other camera products. RSD customer sales for
Fiscal 2001 were approximately $84,127,000, an increase of approximately
$29,191,000, or 53.1% as compared to Fiscal 2000. OEM sales for Fiscal 2001 were
approximately $99,286,000, a decrease of approximately $18,936,000, or 16.0% as
compared to Fiscal 2000.
Sales of Concord Asia for Fiscal 2001 , excluding FOB Hong Kong sales
to its customers in the Americas and Europe of approximately $46,998,000 were
approximately $99,439,000, a decrease of approximately $18,799,000, or 15.9% as
compared to Fiscal 2000. The decrease was due to lower sales to existing OEM
customers partially offset by an increase in sales to new OEM customers.
Sales of Concord Americas for Fiscal 2001, including FOB Hong Kong
sales to customers in the Americas were approximately $57,669,000, an increase
of approximately $28,131,000, or 95.2% as compared to Fiscal 2000. 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 products.
Sales of Concord Europe for Fiscal 2001, including FOB Hong Kong sales
to customers in Europe, were approximately $26,305,000, an increase of
approximately $923,000, or 3.6% as compared to Fiscal 2000. This increase was
primarily due to successful implementation of new programs with both existing
and new customers.
-16-
Gross Profit
Gross profit for Fiscal 2001 was approximately $30,815,000, a decrease of
approximately $16,195,000, or 34.5% as compared to Fiscal 2000. Gross profit,
expressed as a percentage of sales, decreased to 16.8% for Fiscal 2001 as
compared to 27.1% for Fiscal 2000. The decrease in gross profit as a percentage
of sales in Fiscal 2001 compared to Fiscal 2000 was attributable to (i)
competitive price pressures and unfavorable absorption of manufacturing overhead
and labor utilization, (ii) nonrecurring charges of approximately $4,714,000
recorded in the fourth quarter of Fiscal 2001 related to inventory write-downs
and approximately $500,000 recorded in the fourth quarter of Fiscal 2001 related
to a restructuring initiative, (iii) higher product development costs and (iv)
revenues from the sale of digital products. Of the $4,714,000 inventory
write-down, approximately $2,714,000 related to certain specific product
inventory that was intended for KB Gear and approximately $2,000,000 resulted
from inventory being written down to lower of cost or market value. We are no
longer designing, developing or manufacturing products for, or selling products
to, KB Gear. Product development costs for Fiscal 2001 and 2000 were
approximately $6,413,000 and $4,921,000, respectively.
Sales for Fiscal 2001 included revenues from digital products. The Company's
product mix, which historically consisted entirely of reloadable and single use
cameras, is expected to continue changing with the introduction of more digital
products in the future. Digital products are sold at significantly higher unit
prices, but generate lower gross margins as a percentage of sales, than the
reloadable and single use cameras the Company has historically sold. Digital
products however generate a greater gross profit per unit than reloadable and
single use cameras. As a result, as the percentage of digital products in the
Company's sales mix increases, gross margins as a percentage of sales can be
expected to decrease and average revenue and gross profit per unit can be
expected to increase.
In addition, as the Company's mix of manufactured products increases relative to
digital products, the risk of gross profit fluctuations due to digital component
availability and related costs will increase. Since component availability can
fluctuate and is subject to possible procurement delays and other constraints,
it could possibly limit net profit growth and might have a negative impact on
sales and gross margins.
Operating Expenses
Operating expenses, consisting of selling, general and administrative,
terminated acquisition costs and interest expenses increased by approximately
$17,363,000, or 55.9%, to $48,408,000 for Fiscal 2001 from approximately
$31,045,000 for Fiscal 2000. Included in general and administrative costs in
Fiscal 2001 was approximately $15,800,000 related to a bad debt write-off
recognized during the fourth quarter of Fiscal 2001 for an accounts receivable
associated with KB Gear. We are no longer designing, developing or manufacturing
products for, or selling products to, KB Gear. Also
-17-
included in general and administrative costs as a result of the Company's cost
containment initiative, was approximately $900,000 of the approximately
$1,400,000 restructuring charge the Company recorded in its fourth quarter of
Fiscal 2001. Also, included in operating expenses for Fiscal 2001 were expenses
of approximately $800,000 incurred in connection with a proposed corporate
acquisition that was not consummated. As a percentage of sales, operating
expenses increased to 26.4% for Fiscal 2001 from 17.9% for Fiscal 2000.
Excluding the nonrecurring charges of approximately $16,700,000 and terminated
acquisition costs of approximately $800,000, operating expenses as a percentage
of sales would have been 16.9% for Fiscal 2001 compared to 17.9% for Fiscal
2000.
Selling expenses increased by approximately $357,000, or 3.2%, to
approximately $11,500,000 for Fiscal 2001 from approximately $11,143,000 for
Fiscal 2000. The increase was primarily due to increases in salaries,
commissions and freight partially offset by a decrease in certain variable
selling expenses. As a percentage of sales, selling expenses decreased to 6.3%
for Fiscal 2001 from 6.4% for Fiscal 2000.
General and administrative expenses increased by approximately
$16,682,000, or 100.3%, to approximately $33,315,000 for Fiscal 2001 from
approximately $16,633,000 for Fiscal 2000. Excluding the nonrecurring charges of
approximately $16,700,000, general and administrative expenses would have been
approximately $16,615,000 for Fiscal 2001. As a percentage of sales, general and
administrative expenses increased to 18.2% for Fiscal 2001 from 9.6% for Fiscal
2000. Excluding the nonrecurring charges of approximately $16,700,000, as a
percentage of sales, general and administrative expenses were 9.1% for Fiscal
2001, which was in line with Fiscal 2000 general and administrative expenses.
Terminated acquisition costs of approximately $800,000 for Fiscal 2001
related to a proposed acquisition that was not consummated. Negotiations
regarding this acquisition were terminated in September 2000.
Interest expense decreased by approximately $476,000, or 14.6%, to
approximately $2,793,000 for Fiscal 2001 from approximately $3,269,000 for
Fiscal 2000. The lower interest expense in Fiscal 2001 was attributable to
repayment of and lower short-term borrowings and the repayment of certain
capital leases.
Other Income, Net
Other income, net was approximately $4,892,000 and $882,000 for Fiscal
2001 and Fiscal 2000, respectively. Other income, net includes directors' fees,
certain public relations costs, foreign exchange gains and losses and interest
income. The increase in Fiscal 2001 was primarily attributable to higher
interest income for Fiscal 2001 as a result of the interest income earned on the
invested proceeds from the Company's public offering consummated in September
and October 2000.
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 Company's foreign
subsidiaries in the Americas and Europe purchase their inventories in U.S.
Dollars and their sales are in local currency. Accordingly, the U.S. dollar is
the functional currency. Certain sales and purchases of certain components are
made in local currency, including Japanese Yen, thereby creating an exposure to
fluctuations in foreign currency exchange rates. The translation from the
applicable currencies to U.S. dollars is performed for balance sheet accounts
using current exchange rates in effect at the balance sheet date and for revenue
and expense accounts using a weighted average exchange rate during the period.
In Fiscal 2001 and Fiscal 2000, the Company did not conduct hedging activities
and, at June 30, 2001, there were no forward exchange contracts outstanding.
-18-
Income Taxes
Since July 1992, the annual tax rate of Concord Camera HK Limited
("Concord HK") has been 8.75%. The Company currently does not pay taxes or
import/export duties in the PRC, but there can be no assurance that the Company
will not be required to pay such taxes or duties in the future. Hong Kong is
taxed separately from the PRC.
The Company has never paid any income or turnover tax to the PRC on
account of its business activities in the PRC. Existing PRC statutes can be
construed as providing for a minimum of 10% to 15% income tax and a 3% turnover
tax on the Company's business activities; however, the PRC has never attempted
to enforce those statutes. The Company has been advised that the PRC's State Tax
Bureau is reviewing the applicability of those statutes to processing activities
of the type engaged in by the Company, but it has not yet announced any final
decisions as to the taxability of those activities. After consultation with its
tax advisors, the Company does not believe that any tax exposure it may have on
account of its operations in the PRC will be material to its financial
statements.
The Company does not provide for U.S. federal income taxes on
undistributed earnings of its foreign subsidiaries as it intends to permanently
reinvest such earnings. Undistributed earnings of its foreign subsidiaries
approximated $45,233,766 as of June 30, 2001. It is not practicable to estimate
the amount of tax that might be payable on the eventual remittance of such
earnings. Upon eventual remittance, no withholding taxes will be payable. As of
June 30, 2001, Concord had net operating loss carryforwards for U.S. tax
purposes of approximately $13,877,000, which expire as follows: $3,936,000 in
2008, $2,716,000 in 2009, $4,095,000 in 2010 and the balance thereafter. Losses
for state tax purposes begin to expire in 2002.
As of June 30, 2001, management evaluated Concord's deferred tax
assets. As part of assessing the realizability of its deferred tax assets,
management evaluated whether it is more likely than not that some portion, or
all of its deferred tax assets, will be realized. The realization of its
deferred tax assets relates directly to the Company's tax
-19-
planning strategies and the ability to generate taxable income for U.S. federal
and state tax purposes. The valuation allowance is then adjusted accordingly. As
of June 30, 2001, based on all the available evidence, management determined
that it is more likely than not that its deferred tax assets will be fully
realized. Accordingly, there was no valuation allowance recorded against its
deferred tax asset at June 30, 2001. For Fiscal 2001, Fiscal 2000 and Fiscal
1999, the Company's effective tax rate was (5.1%), (16.3%), and 10.4%. The
Company's future effective tax rate will depend on the mix between foreign and
domestic taxable income and losses, and the statutory rates of the related tax
jurisdictions.
Net Income
As a result of the matters described above, the Company had a net loss
of approximately $11,770,000, or $0.45 per share, for Fiscal 2001 as compared to
net income of approximately $19,599,000, or $0.81 per diluted share, for Fiscal
2000, which included the net deferred tax benefit of approximately $2,751,000,
or $.11 per diluted share, related to the tax benefit.
Fiscal 2000 Compared to Fiscal 1999
Revenues
Revenues for Fiscal 2000 were approximately $173,158,000, an increase
of approximately $54,740,000, or 46.2%, as compared to Fiscal 1999. This
increase in sales resulted principally from increases in sales to OEM and RSD
customers. OEM sales for Fiscal 2000 were approximately $118,222,000, an
increase of approximately $36,632,000, or 44.9% as compared to Fiscal 1999. RSD
customer sales for Fiscal 2000 were approximately $54,936,000, an increase of
approximately $18,108,000, or 49.2% as compared to Fiscal 1999. Included in our
RSD sales for Fiscal 2000, were FOB Hong Kong sales of Concord Asia to its
customers in the Americas of approximately $11,945,000 and to its customers in
Europe of approximately $12,297,000. The increase in sales to OEM and RSD
customers was primarily due to increased sales to pre-existing OEM and RSD
customers and, to a lesser extent, new OEM and RSD customers.
Sales of Concord Asia for Fiscal 2000, excluding FOB Hong Kong sales to
its customers in the Americas and Europe of approximately $24,242,000, were
approximately $118,238,000, an increase of approximately $36,453,000, or 44.6%
as compared to Fiscal 1999. The increase was primarily due to higher sales to
existing OEM customers.
Sales of Concord Americas for Fiscal 2000, including FOB Hong Kong
sales to customers in the Americas, were approximately $29,538,000, an increase
of approximately $9,378,000, or 46.5% as compared to Fiscal 1999. The increase
was primarily due to successful implementation of new programs with new and
existing customers and the positive sell through of certain new products.
Sales of Concord Europe for Fiscal 2000, including FOB Hong Kong sales
to customers in Europe, were approximately $25,382,000, an increase of
approximately $8,909,000, or 54.1% as compared to Fiscal 1999. This increase was
due to increased sales to both existing and new customers.
Gross Profit
Gross profit for Fiscal 2000 was approximately $47,010,000, an increase
of approximately $15,256,000, or 48.0% as compared to Fiscal 1999. Gross profit,
expressed as a percentage of sales, increased to 27.1% for Fiscal 2000 from
26.8% for Fiscal 1999. This increase was primarily the result of more favorable
absorption of manufacturing overhead and labor utilization resulting from
increased sales and manufacturing volume and efficiencies. Product development
costs were approximately $4,921,000 for Fiscal 2000 compared to $4,815,000 for
Fiscal 1999.
-20-
Operating Expenses
Operating expenses increased by approximately $7,452,000, or 31.6%, to
approximately $31,045,000 for Fiscal 2000 from approximately $23,593,000 for
Fiscal 1999. As a percentage of sales, operating expenses, consisting of
selling, general and administrative and interest expenses decreased to 17.9% for
Fiscal 2000 from 19.9% for Fiscal 1999.
Selling expenses increased by approximately $3,221,000, or 40.7%, to
approximately $11,143,000 for Fiscal 2000 from approximately $7,922,000 for
Fiscal 1999. The increase was primarily due to increases in promotional
allowances, freight costs, and royalty expenses net of benefits from certain
cost cutting activities. As a percentage of sales, selling expenses decreased to
6.4% for Fiscal 2000 from 6.7% for Fiscal 1999.
General and administrative expenses increased by approximately
$4,417,000, or 36.2%, to approximately $16,633,000 for Fiscal 2000 from
approximately $12,216,000 for Fiscal 1999. As a percentage of sales, general and
administrative expenses decreased to 9.6% for Fiscal 2000 from 10.3% for Fiscal
1999. The increase in general and administrative expenses was primarily
attributable to the Company continuing to build its infrastructure to
accommodate its growth.
Interest expense decreased by approximately $186,000, or 5.4%, to
approximately $3,269,000 for Fiscal 2000 from approximately $3,455,000 for
Fiscal 1999. As a percentage of sales, interest expense decreased to 1.9% for
Fiscal 2000 from 2.9% for Fiscal 1999.
Other Income, Net
Other income, net was approximately $882,000 and $441,000 for Fiscal
2000 and Fiscal 1999, respectively. The increase was primarily attributable to
higher interest income for Fiscal 2000, compared to Fiscal 1999, and to a much
lesser extent, gains from foreign exchange transactions.
-21-
Income Taxes
Historically, the Company has maintained full valuation allowances on
its deferred tax assets and as of July 3, 1999, there was a $6,024,000 valuation
allowance recorded against its deferred tax assets which were primarily related
to domestic net operating loss carryforwards. In assessing the realizability of
its deferred tax assets, management evaluated whether it is more likely than not
that some portion, or all of its deferred tax assets, will be realized. The
realization of its deferred tax assets relates directly to the Company's tax
planning strategies and ability to generate taxable income for U.S. federal and
state tax purposes. The valuation allowance is then adjusted accordingly. As of
July 1, 2000, based on all the available evidence, management determined that it
is more likely than not that its deferred tax assets will be fully realized.
Accordingly, the valuation allowance was reversed in full and $4,518,000 was
recognized as a deferred tax asset at July 1, 2000 and a corresponding deferred
tax benefit was also recognized. The Company recognized a net tax benefit of
$2,751,000 for Fiscal 2000, of which approximately $1,100,000 related to current
tax expense for foreign operations.
Net Income
As a result of the matters described above, the Company had net income
of approximately $19,599,000, or $0.81 per diluted share, for Fiscal 2000,
compared to net income of approximately $7,709,000, or $0.33 per diluted share,
for Fiscal 1999.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 2001, the Company had working capital of approximately
$131,003,000 compared to approximately $52,600,000 at July 1, 2000. Cash used in
operations in Fiscal 2001 was approximately $3,441,000, which compared
unfavorably to cash provided by operations of approximately $9,661,000 and
$17,519,000 for Fiscal 2000 and Fiscal 1999, respectively. The changes in cash
provided by operating activities for the respective Fiscal Years was primarily
attributable to changes in accounts receivable, inventories and accounts
payable.
Capital expenditures for Fiscal 2001, Fiscal 2000 and Fiscal 1999 were
approximately $7,488,000, $7,792,000, and $6,166,000, respectively, and related
primarily to plant and equipment purchases for the manufacturing facility
located in the PRC.
Cash provided by financing activities was approximately $44,013,000, which was
primarily attributable to the Company's public offering (described more fully
below) in September and October 2000. This compared to cash used in financing of
approximately $8,185,000 for Fiscal 2000, and cash provided by financing
activities of approximately $12,234,000 in Fiscal 1999. In Fiscal 2001, the
Company used its working capital to pay off certain of its capital leases and
short-term debt. Additionally, the Company invested approximately $49,870,000 in
short-term investments consisting of U.S. government agency backed securities,
all of which mature in six months or less. In Fiscal 2000 the Company was able
to refinance certain of its short-term debt (as described more fully below) and
pay off certain other high cost obligations including certain leases. In both
Fiscal 1999 and Fiscal 1998 the Company borrowed significantly more monies on a
short-term basis through revolving and other types of credit facilities and on a
long-term basis through a private placement of unsecured senior notes (described
more fully below).
-22-
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 on October 2, 2000 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 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 and short-term investments.
Senior Notes Payable. On July 30, 1998, the Company consummated a private
placement of $15,000,000 of unsecured senior notes. The notes bear interest at
11.0%, and mature on July 15, 2005. Interest payments are due quarterly. The
indenture governing the notes contains certain restrictive covenants relating
to, among other things, incurrence of additional indebtedness and dividend and
other payment restrictions affecting the Company and its subsidiaries.
Hong Kong Credit Facilities. Concord HK has various revolving credit facilities
in place providing an aggregate of approximately $33,500,000 in borrowing
capacity. Certain of the revolving credit facilities are denominated in Hong
Kong dollars. Since 1983 the Hong Kong dollar has been pegged to the United
States dollar. The revolving credit facilities are comprised of 1) an
approximately $11,000,000 Import Facility, 2) an approximately $2,600,000
Packing Credit and Export Facility, 3) an approximately $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 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 June 30, 2001,
no amounts were outstanding.
United Kingdom Credit Facility. In November 1999, a United Kingdom subsidiary of
the Company, obtained a credit facility (the "UK Facility") in the United
Kingdom that is secured by substantially all of the assets of the Company's
United Kingdom subsidiary. The UK Facility bears interest at 1.5% above the UK
prime lending rate and was principally utilized for working capital needs and
allows borrowings of up to approximately $1,000,000. At June 30, 2001, there
were no amounts outstanding under the UK Facility.
-23-
United States Credit Facilities. In June 2000, Concord Camera Corp. and a U.S.
subsidiary each entered into a credit facility (collectively, the "US
Facilities") with lenders that provide Concord Keystone Sales Corp. and Concord
Camera Corp. with up to $5,000,000 and $2,500,000, respectively, of unsecured
working capital. The US Facilities bear interest at 1.75% above London Interbank
Offer Rate ("LIBOR"). No amounts were outstanding under the US Facilities at
June 30, 2001.
The weighted average interest rate on the Company's short-term borrowings was
approximately 9.5%, 10.6%, and 11.7% for Fiscal 2001, Fiscal 2000 and Fiscal
1999, respectively.
Stock Split. On April 14, 2000, the Company effected a two-for-one stock split
of its Common Stock through a stock dividend to shareholders of record on March
27, 2000. Accordingly, share and per-share data for all periods presented in
this report have been restated to reflect the stock split.
Common Stock Buy-Back Programs. The Company purchased shares of its Common Stock
in Fiscal 2000 and Fiscal 1999 for approximately $759,000 and $2,926,000,
respectively, as part of a Board of Director approved Common Stock buy-back
program. In connection with this buyback program, the Company purchased a total
of 1,543,000 shares of its Common Stock in open market transactions in Fiscal
2000 and Fiscal 1999.
In February 2001, the Company adopted an additional share repurchase program
pursuant to which the Board of Directors allocated up to $10,000,000 for the
repurchase of shares of the Company's Common Stock. The Company has not
repurchased any shares pending completion of a review of the Company's other
capital investment opportunities but continues to believe that the Common Stock
is significantly undervalued at current prices and represents an attractive
investment opportunity for the Company. As appropriate, the Company intends to
act on this opportunity.
Exchange Offer. On August 28, 2001, the Company launched an offer to exchange
outstanding stock options with an exercise price of more than $7.00 per share
for new options to purchase 75% of the shares subject to the outstanding options
at an exercise price of $5.97 per share (the closing price of the Common Stock
reported on the Nasdaq National Market on the date the Board of Directors
approved the exchange offer.) The exchange offer will expire on October 2, 2001
unless extended by the Company.
Future Cash Commitments. We believe that our cash and cash equivalents,
short-term investments, anticipated cash flow from operations, and amounts
available under our credit facilities will be sufficient to meet our working
capital and anticipated capital expenditure needs for the foreseeable future.
-24-
The Company is evaluating various growth opportunities which could require
significant funding commitments. The Company has from time to time held, and
continues to hold, discussions and negotiations with (i) companies that
represent potential acquisition or investment opportunities, (ii) potential
strategic and financial investors who have expressed an interest in making an
investment in or acquiring the Company, (iii) potential joint venture partners
looking toward formation of strategic alliances that would broaden the Company's
product base or enable the Company to enter new lines of business and (iv)
potential new and existing OEM customers where the design, development and
production of new products, including certain new technologies, would enable the
Company to expand its existing business, and enter new markets outside its
traditional business including new ventures focusing on wireless connectivity
and other new communication technologies. There can be no assurance that any
definitive agreement will be reached regarding any of the foregoing, nor does
management believe such agreements are necessary for successful implementation
of the Company's strategic plans.
RISK FACTORS
You should carefully consider the following risks regarding our Company. These
and other risks could materially and adversely affect our business, operating
results or financial condition. You should also refer to the other information
contained or incorporated by reference in this report.
Most of our operations are subject to control by the People's Republic of China
(PRC) and several of its local governmental agencies.
The continuing viability of our PRC agreements is crucial to our business
operations in the PRC. We manufacture a majority of the components used in our
cameras and assemble all of our manufactured finished products in the PRC. Our
agreements with various PRC government or quasi-government agencies currently
provide us with approximately 4,000 workers. We are responsible for their wages,
food and housing and must comply with a variety of local labor and employee
benefit laws covering these workers. While we believe we are in substantial
compliance with applicable laws as currently enforced, these laws are subject to
modification and interpretation by the applicable governmental authorities. We
cannot predict the impact of any future modifications to or strict enforcement
of the existing laws. In addition, the termination or material modification of
any of our agreements with PRC government and quasi-government agencies could
have a material adverse impact on our revenues and earnings.
Political and economic uncertainties in the PRC could affect our business.
Our business could be adversely affected by the imposition in the PRC of
austerity measures intended to reduce inflation, which could result in the
inadequate development or maintenance of infrastructure, the unavailability of
adequate power and water supplies, transportation, raw material and parts, or a
deterioration of the general political, economic or social environment in the
PRC.
Relocation time and expenses could result in substantial losses.
If we determine it is necessary to relocate our manufacturing facilities from
the PRC, due to confiscation, expropriation, nationalization, embargoes, or
other governmental restrictions, we would incur substantial operating and
capital losses including losses resulting from business interruption and delays
in production. In addition, as a result of a relocation of our manufacturing
equipment and other assets, we would likely incur relatively higher
manufacturing costs, which could reduce sales and decrease the current margin on
the products we previously manufactured in the PRC. Relocation of our
manufacturing operations would also result in disruption in the delivery of our
products which could, in turn, reduce demand for such products in the future.
-25-
There is also a risk of business interruption as a result of political events,
the costs of which may exceed our insurance coverage.
The PRC has experienced political disruptions in the past. We maintain political
risk insurance up to $15 million on equipment and business interruption
insurance up to $15 million, but it is possible that political events may cause
an interruption of our manufacturing operations, the cost of which might exceed
our insurance coverage.
A change in the PRC's trade status could affect the import cost of our products.
The PRC enjoys most-favored nation trading status granted by the United States,
whereby the United States imposes the lowest applicable tariffs on exports to
the United States. The United States annually reconsiders the renewal of
most-favored nation trading status for the PRC. A law passed in 2000 would
establish permanent normal trade relations with the PRC upon its entry into the
World Trade Organization, currently expected to occur some time in 2002. A bill
recently introduced in the U.S. House of Representatives seeks to revoke the
pending establishment of permanent normal trade relations with the PRC. If
permanent normal trade relations were not established and the PRC's most-favored
nation status were rescinded, there would be a substantial increase in tariffs
imposed on goods of Chinese origin entering the United States, including those
goods manufactured by us, which would have a material adverse impact on our
revenues and earnings.
We are dependent on certain large customers.
In Fiscal 2001, we had three customers each of whose purchases represented in
excess of 10% of our total sales and whose purchases in the aggregate
represented 40.7% of our total sales. During the fourth quarter of Fiscal 2001,
we recorded a bad debt write-off of approximately $15,800,000, which represented
the outstanding accounts receivable balance of one of these customers, KB Gear
whose purchases represented 14.3% of our total Fiscal 2001 sales. We are no
longer designing, developing or manufacturing products for, or selling products
to, KB Gear.
One of our larger customers, Polaroid, is experiencing financial difficulties
and its auditors have issued a going concern opinion to Polaroid. The loss of
any of our other large customers could have a material adverse impact on our
revenues and profits.
A reversal of the International Trade Commission ban on importation of new and
re-loaded single use cameras could adversely affect our business.
In June 1999, the International Trade Commission ("ITC") banned the unlicensed
importation into the United States of new and reloaded single use cameras due to
the infringement of such imports on existing patents held by Fuji. The Court of
Appeals for the Federal Circuit recently upheld the ban on new single use
cameras and on reloaded single use cameras not originally sold in the United
States by Fuji or its licensees or not reloaded in a prescribed manner. If the
decision is reconsidered or reversed, and the United States market for imported
remanufactured single use cameras becomes open to competition, it could have a
material adverse impact on our revenues and earnings.
-26-
We are dependent on a small group of key personnel.
Our business is managed by a small number of key management and operating
personnel. In particular, we rely on the continued services of Ira B. Lampert,
our Chairman, Chief Executive Officer and President. The loss of any of these
key employees could have a material adverse impact on our business. We believe
our future success will depend in large part on our continued ability to attract
highly skilled and qualified personnel. Competition for such personnel is
intense. We may not be able to hire the necessary personnel to implement our
business strategy, or we may need to pay higher compensation for employees than
currently budgeted. Our inability to attract and retain such personnel could
limit our growth and affect our profits.
Our newer digital camera products involve a more complex development process,
which we may not be able to successfully integrate into our operations.
Digital cameras involve a more complex development process and component
procurement process than our reloadable and single use cameras. Manufacturing
delays, including component procurement delays, which may be outside our
control, could adversely impact our business, results of operations and
financial condition.
To achieve our operating and financial objectives, we must manage our
anticipated growth effectively.
Our business has grown rapidly, and our future success depends in large part on
our ability to manage our recent and anticipated growth. To manage this growth,
we will need to hire additional experienced, skilled personnel and to train,
manage and retain key employees. These activities may strain our management
resources. If we were unable to manage growth effectively, our profits would be
adversely affected.
The camera and photographic products industry is highly competitive.
As a manufacturer and distributor of low cost image capture products, we
encounter substantial competition from a number of firms, many of which have
longer operating histories, more established markets, more extensive facilities
and, in some cases, greater resources.
We face certain foreign currency risks as a result of conducting a substantial
portion of our business activities in Hong Kong.
Since 1983 the Hong Kong dollar has been pegged to the United States dollar, but
the exchange rate of the Hong Kong dollar may fluctuate in the future. Although
our OEM and major retail business is conducted in U.S. dollars, certain of our
obligations under agreements in the PRC and with our Hong Kong suppliers, are
paid in Hong Kong dollars. We are also exposed to currency risks in Japan and
other countries where we purchase materials for our products or sell those
products. We generally do not engage in currency hedging activities.
We also face political risks as a result of conducting administrative, sales,
engineering and design activities in Hong Kong.
In July 1997, the exercise of sovereignty over Hong Kong was transferred from
the United Kingdom to the PRC and Hong Kong became a Special Administrative
Region of the PRC. We cannot predict how the PRC will interpret and implement
the basic law that provides, in part, for the capitalist system and way of life
to remain unchanged for 50 years. We can also not predict the effect of any such
action on our business activities in Hong Kong or our operations or financial
condition in general. Any significant changes affecting our operations or
financial condition in the PRC or Hong Kong could have a material adverse effect
on our business and financial condition.
-27-
The importation of products into the United States and other countries in which
our products are sold is subject to various other risks.
The United States, the PRC, Hong Kong, the European Union or other countries may
impose trade restrictions that could adversely affect our operations. In
addition, the United States is currently monitoring various PRC practices,
including trade, investment and government procurement, as well as the PRC's
compliance with various multilateral and bilateral agreements. We cannot predict
whether the United States will take future trade actions against the PRC that
may result in increased tariffs against PRC products, including products
imported by us.
The market price of our common stock may fluctuate.
The stock markets, and in particular the Nasdaq National Market, have
experienced extreme price and volume fluctuations that have affected the market
prices of equity securities of many companies and that often have been unrelated
or disproportionate to the operating performance of such companies. These broad
market factors may adversely affect the market price of our common stock. In the
past, following periods of volatility in the market price of a company's
securities, securities class action litigation has often been instituted against
that company. Such litigation, if instituted, could result in substantial costs
and a diversion of management's attention and resources, which could harm our
business.
We may not be able to identify and integrate future acquisitions.
We intend to pursue strategic acquisitions that we consider reasonable in light
of the revenues and profits we believe we will be able to generate from these
acquisitions. The cost of acquisitions within the industry has generally
increased over time. Additionally, we compete for acquisitions with certain
other industry competitors, some of which have greater financial and other
resources than we do. Increased demand for acquisitions may result in fewer
acquisition opportunities for us as well as higher acquisition prices. Although
we believe opportunities may exist for us to grow through acquisitions, we may
not be able to identify and consummate acquisitions on acceptable terms. If we
do acquire other companies, we may not be able to profitably manage and
successfully integrate them with our operations and sales and marketing efforts
without substantial costs or delays. Acquisitions involve a number of potential
risks, including the potential loss of customers, increased leverage and debt
service requirements, combining disparate company cultures and facilities and
operating in geographically diverse markets. One or more of our future
acquisitions may have a material adverse effect on our financial condition and
results of operations.
-28-
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
The Company, as a result of its global operating and financial activities, is
exposed to changes in interest rates and foreign currency exchange rates which
may adversely affect its results of operations and financial position. In
seeking to minimize the risks and/or costs associated with such activities, the
Company manages exposures to changes in interest rates and foreign currency
exchange rates through its regular operating and financing activities.
The Company's exposure to changes in interest rates results from its borrowing
activities used to meet its liquidity needs. Its borrowing activities include
the use of fixed and variable rate financial instruments which allows the
Company flexibility regarding the timing of the short and long term maturities
of such financial instruments. Long-term debt is generally used to finance
long-term investments, while short-term debt is used to meet working capital
requirements. The Company's current debt structure consists principally of
borrowings of a long-term nature with a fixed rate of interest. The remainder of
the borrowings are of a short-term nature typically subject to variable interest
rates based on a prime or LIBOR rate plus or minus a margin. Since the
significant outstanding borrowings of the Company are of a fixed rate nature,
the Company does not deem interest rate risk to be significant or material to
its financial position or results of operations. Derivative instruments are not
presently used to adjust the Company's interest rate risk profile. The Company
does not utilize financial instruments for trading or speculative purposes, nor
does it utilize leveraged financial instruments. The Company continues to
monitor its capital structure and interest rate risk exposure, and believes it
mitigates such risk principally through its strong working capital position.
Each of the Company's foreign subsidiaries purchases its inventories in U.S.
Dollars and sells them in local currency, thereby creating an exposure to
fluctuations in foreign currency exchange rates. Certain components needed to
manufacture cameras are purchased in Japanese Yen. The impact of foreign
exchange transactions is reflected in the profit and loss statement. As of June
30, 2001 we were 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.
Item 8. Financial Statements and Supplemental Data.
The financial statements listed in Item 14(a) (1) and (2) are included in this
report beginning on page F-2.
-29-
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosures.
None.
PART III
Item 10. Directors and Executive Officers of the Company.
Executive Officers and Directors
Our executive officers and directors, and their respective ages as of August 2,
2001, are as follows:
Name Age Position
---- --- --------
Ira B. Lampert(3)(4) 56 Chairman, Chief Executive Officer, and President
Brian F. King 48 Senior Vice President and Secretary
Harlan I. Press 37 Vice President, Treasurer and Assistant Secretary
Gerald J. Angeli 48 Vice President of Worldwide Engineering and Technology
Keith L. Lampert 31 Vice President of Worldwide Operations of the Company;
Managing Director of Concord HK
Urs W. Stampfli 49 Vice President and Director of Global Sales and Marketing
Ronald S. Cooper(1)(2) 62 Director
Morris H. Gindi(5) 56 Director
J. David Hakman(3)(4) 59 Director
William J. Lloyd(1)(5) 61 Director
William J. O'Neill, Jr.(1)(2) 59 Director
-----------------
(1) Member of Audit Committee.
(2) Member of Compensation and Stock Option Committee.
(3) Member of Executive Committee.
(4) Member of Nominating Committee.
(5) Member of Marketing and Product Development Committee.
Ira B. Lampert has been the Chairman and Chief Executive Officer of the Company
since July 13, 1994. For the calendar year 1995 and again from July 31, 1998
through the present, Mr. Lampert also served as President of the Company. Mr.
Lampert is a member of the Board of the Queens College Foundation of the City
University of New York and is the Treasurer of the Boys & Girls Republic, a
nonprofit organization for underprivileged children.
-30-
Brian F. King has been Senior Vice President of the Company since August 1998.
In addition, Mr. King has served as Secretary of the Company since August 1996
and served as Managing Director of Concord HK from August 1996 through April
2000. Mr. King served as the Company's Vice President of Corporate and Strategic
Development from June 1996 to August 1998.
Harlan I. Press has been Vice President and Treasurer since April 2000, Chief
Accounting Officer since November 1994, and Assistant Secretary of the Company
since October 1996. Mr. Press served as the Corporate Controller of the Company
from October 1996 through April 2000. Mr. Press is a member of the American
Institute of Certified Public Accountants, the New York State Society of
Certified Public Accountants and the Financial Executives Institute.
Gerald J. Angeli joined the Company in April 2000 as Vice President, OEM Product
Supply. Since March 2001, he has served as the Company's Vice President of
Worldwide Engineering and Technology. From July 1997 to April 2000, Mr. Angeli
was Vice President, Global Manufacturing and Products Supply for NCR
Corporation's Systemedia Group, where he was responsible for manufacturing,
customer service, distribution and logistics. Before that, Mr. Angeli was
employed by Kodak for 20 years in various capacities, most recently as Manager
of Worldwide Manufacturing and Supply Chain and Vice President, Consumer
Imaging.
Keith L. Lampert, who is a son of Ira B. Lampert, has been the Company's Vice
President of Worldwide Operations since March 2001 and Managing Director of
Concord HK since April 2000. He became a Vice President of the Company in August
1998. Among other things, Mr. Lampert is responsible for the Company's
operations in Hong Kong and the PRC. Mr. Lampert has been employed by the
Company since 1993. Mr. Lampert is also the Business Sub-Committee Chairman of
the Hong Kong Photographic and Optics Manufacturers Association.
Urs W. Stampfli has been Vice President and Director of Global Sales and
Marketing for the Company since April 2000. Mr. Stampfli joined the Company in
May 1998 as Director of Global Sales and Marketing. From 1990 to April 1998, Mr.
Stampfli was Vice President, Marketing, Photo Imaging Systems of Agfa Division,
Bayer Corporation.
Ronald S. Cooper has been a director of the Company since January 2000. Mr.
Cooper is a co-founder and principal of LARC Strategic Concepts, LLC, a
consulting firm focusing on emerging growth companies. Mr. Cooper retired from
Ernst & Young LLP in September 1998, having joined the firm in 1962. He became a
partner in 1973 and was Managing Partner of the firm's Long Island office from
1985 until he retired. He is also a director of Frontline Capital Group, a
publicly traded e-commerce company.
Morris H. Gindi has been a director of the Company since 1988. Mr. Gindi has
served as the Chief Executive Officer of Notra Trading Inc., an import agent in
the housewares and domestics industry, since 1983.
-31-
J. David Hakman has been a director of the Company since 1993. Mr. Hakman owns
Hakman Capital Corporation, an investment and merchant banking concern, a
subsidiary of which is a member of the National Association of Securities
Dealers, Inc. In addition to serving as a director of several closely held
companies, Mr. Hakman is a director of Hanover Direct, Inc., a direct marketing
business.
William J. Lloyd has been a director of the Company since May 2000. Mr. Lloyd
has been Executive Vice President and Chief Technology Officer of Gemplus
International, a leading smart card solutions provider for telecommunications,
financial services and e-business security, since November 2000. Prior to
joining Gemplus, Mr. Lloyd was co-chief executive of Phogenix Imaging, LLC, a
Hewlett Packard/Kodak joint venture. From 1969 to 2000, Mr. Lloyd held various
management positions at Hewlett Packard, most recently as Vice President, Chief
Technology Officer for its Digital Media Solutions and Personal Appliances and
Services.
William J. O'Neill, Jr. has been a director of the Company since August 2001.
Mr. O'Neill is a founder and principal of O'Neill Group, Inc., a consulting firm
focused on developing business strategies, operational execution, financial
evaluations and fundraising activities. From 1969 to 1999, Mr. O'Neill held
various management positions at Polaroid, most recently as Executive Vice
President and President, Corporate Business Development. In July 2001, he was
appointed as Dean of the Frank Sawyer School of Management at Suffolk University
in Boston, Massachusetts.
Section 16 Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires directors, executive officers and ten
percent (10%) shareholders of the Company ("Reporting Persons") to file initial
reports of ownership and reports of changes in ownership of the Common Stock and
any other equity securities with the Securities and Exchange Commission ("SEC").
Reporting Persons are required to furnish the Company with copies of all Section
16(a) reports they file. Based on a review of the copies of the reports
furnished to the Company and written representations from the Reporting Persons
that no other reports were required, with respect to Fiscal 2001 the Company
believes that: (i) the Reporting Persons complied with all Section 16(a) filing
requirements applicable to them, except that Kent Klineman (a former director)
filed a late Form 4 for May 2001; and (ii) there were no failures to file a
report required under Section 16(a) by any of the Reporting Persons.
-32-
Item 11. Executive Compensation
SUMMARY COMPENSATION TABLE
The following table contains certain information regarding aggregate
compensation paid or accrued by the Company during Fiscal 2001 to the Chief
Executive Officer and to each of the other four highest paid executive officers.
Long-Term
Compensation
Annual Compensation Awards
------------------------------------------- -----------
Shares
Other Annual Underlying All Other
Name and Fiscal Salary* Bonus* Compensation Options Compensation
Principal Position Year ($) ($) ($) (#) ($)
------------------ ------ -------- ------- ------------- ----------- -------------
Ira B. Lampert 2001 $969,444 $860,686 $186,555(1) -- $1,461,524(7)
Chairman, Chief 2000 704,167 400,000 201,482(2) 350,672 882,371(8)
Executive Officer 1999 616,668 350,000 148,595(3) -- 628,951(9)
and President
Brian F. King 2001 425,000 444,809 18,000(4) -- 385,807(10)
Senior Vice 2000 327,147 175,000 18,000(4) 169,680 123,148(11)
President 1999 322,460 150,000 48,000(5) -- 105,783(11)
Keith L. Lampert 2001 240,000 281,639 25,000(6) -- 229,868(12)
Vice President 2000 204,601 100,000 25,000(6) 101,808 83,520(13)
of Worldwide Operations; 1999 167,052 75,000 25,000(6) -- 72,037(13)
Managing Director of
Concord HK
Urs W. Stampfli 2001 223,650 155,282 12,000(4) -- 44,647(14)
Vice President and 2000 192,500 45,000 12,000(4) 24,886 7,245(15)
Director of Global 1999 175,000 5,000 12,000(4) -- 7,245(15)
Sales and Marketing
Harlan I. Press 2001 170,000 138,584 6,000(4) -- 59,459(16)
Vice President and 2000 155,000 50,000 6,000(4) 41,330 6,515(17)
Treasurer 1999 140,178 40,000 4,833(4) 40,000 790(15)
-----------------
(*) Represents bonuses determined and paid by the Company in the fiscal
year, based on the Company's and the executive's performance in the
previous fiscal year. No bonuses were awarded with respect to Fiscal
2001. In addition, in light of the cost-cutting measures recently
undertaken by the Company, the executive officers named in the above
table all voluntarily agreed, on a verbal basis, to a decrease in their
base salaries of approximately 11% effective as of July 1, 2001 (the
beginning of Fiscal 2002).
(1) Represents $30,808, $56,422 and $99,325 paid for auto allowances and
costs, partial housing costs and reimbursement of taxes, respectively.
-33-
(2) Represents $35,911, $66,141 and $99,430 paid for auto allowances and
costs, partial housing costs and reimbursement of taxes, respectively.
(3) Represents $35,595, $48,000 and $65,000 paid for auto lease and costs,
partial housing costs and reimbursement of taxes, respectively.
(4) Represents auto allowances paid.
(5) Represents $12,000 and $36,000 paid for auto and overseas allowances,
respectively.
(6) Represents overseas allowances paid.
(7) Represents: (a) the amount of the April 19, 2000 grant of deferred
compensation that vested in Fiscal 2001, as described under "Executive
Employment Contracts, Termination of Employment and Change in Control
Arrangements" below; (b) the $500,000 yearly credit for 2001 under the
Lampert SERP, also described under the same heading; (c) payments by
the Company for insurance premiums; and (d) $404,883 repaid to Ira B.
Lampert as deferred compensation pursuant to the conditional release
program (described under "Certain Relationships and Related
Transactions" below) because he prepaid the total amount of the
indebtedness before it was scheduled to be forgiven by the Company.
(8) Represents: (a) $452,371 of indebtedness forgiven (including principal
and interest) by the Company as part of the conditional release program
described under "Certain Relationships and Related Transactions" below;
(b) $400,000 of deferred compensation credited to his account under the
Lampert SERP (described under "Executive Employment Contracts,
Termination of Employment and Change in Control Arrangements" below);
and (c) payments by the Company for insurance premiums.
(9) Represents: (a) $389,827 of indebtedness forgiven (including principal
and interest) by the Company as part of the conditional release program
described under "Certain Relationships and Related Transactions" below;
(b) $220,000 of deferred compensation credited to his account under the
Lampert SERP (described under "Executive Employment Contracts,
Termination of Employment and Change in Control Arrangements" below);
and (c) payments by the Company for insurance premiums.
(10) Represents: (a) the amount of the April 19, 2000 grant of deferred
compensation that vested in Fiscal 2001, as described under "Executive
Employment Contracts, Termination of Employment and Change in Control
Arrangements" below; (b) payments by the Company for insurance
premiums; and (c) $133,419 repaid to Brian F. King as deferred
compensation pursuant to the conditional release program (described
under "Certain Relationships and Related Transactions" below) because
he prepaid the total amount of the indebtedness before it was scheduled
to be forgiven by the Company.
(11) Represents: (a) indebtedness forgiven (including principal and
interest) by the Company as part of a conditional release program
described under "Certain Relationships and Related Transactions" below,
in the amounts of $103,954 for Fiscal 1999 and $120,632 for Fiscal
2000; and (b) payments by the Company for insurance premiums.
(12) Represents: (a) the amount of the April 19, 2000 grant of deferred
compensation that vested in Fiscal 2001, as described under "Executive
Employment Contracts, Termination of Employment and Change in Control
Arrangements" below; (b) payments by the Company for insurance
premiums; and (c) $78,858 repaid to Keith L. Lampert as deferred
compensation pursuant to the conditional release program (described
under "Certain Relationships and Related Transactions" below) because
he prepaid the total amount of the indebtedness before it was scheduled
to be forgiven by the Company.
(13) Represents: (a) indebtedness forgiven (including principal and
interest) by the Company as part of a conditional release program
described under "Certain Relationships and Related Transactions" below,
in the amounts of $71,468 for Fiscal 1999 and $82,935 for Fiscal 2000;
and (b) payments by the Company for insurance premiums.
(14) Represents: (a) the amount of the April 19, 2000 grant of deferred
compensation that vested in Fiscal 2001, as described under "Executive
Employment Contracts, Termination of Employment and Change in Control
Arrangements" below; and (b) payments by the Company for insurance
premiums.
-34-
(15) Represents insurance premiums paid by the Company.
(16) Represents: (a) $3,379 of indebtedness forgiven (including principal
and interest) by the Company as part of a conditional release program
described under "Certain Relationships and Related Transactions" below;
(b) the amount of the April 19, 2000 grant of deferred compensation
that vested in Fiscal 2001, as described under "Executive Employment
Contracts, Termination of Employment and Change in Control
Arrangements" below; and (c) payments by the Company for insurance
premiums.
(17) Represents: (a) $5,615 of indebtedness forgiven (including principal
and interest) by the Company as part of a conditional release program
(see "Certain Relationships and Related Transactions" below); and (b)
payments by the Company for insurance premiums.
Stock Options
No stock option grants were made during Fiscal 2001 to any of the executive
officers named in the "Summary Compensation Table."
The following table sets forth information concerning stock option exercises
during Fiscal 2001 by each of the executive officers named in the "Summary
Compensation Table" and the fiscal year-end value of unexercised options held by
such officers, based on the closing price of $5.90 for the Common Stock on June
29, 2001.
Aggregated Stock Option Exercises in Fiscal 2001
and Fiscal Year-End Option Values
Number of Shares Underlying Value of Unexercised
Unexercised Options In-the-Money Options
Shares at FY End (#) at FY End ($)
Acquired on Value ------------------------------ ----------------------------
Name Exercise (#) Realized ($) Exercisable Unexercisable Exercisable Unexercisable
---- -------------- ------------ ----------- ------------- ----------- -------------
Ira B. Lampert 123,000* $956,850* 1,481,817 155,855 $6,185,363 --
Brian F. King -- -- 480,932 75,414 1,835,038 --
Keith L. Lampert -- -- 346,560 45,248 1,391,735 --
Urs W. Stampfli -- -- 73,825 11,061 189,000 --
Harlan I. Press 30,000* 381,093* 80,738 26,592 187,500 $85,500
-----------------
* None of the shares acquired upon these exercises have been sold; the
executives exercised these options and held the shares so acquired.
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 will expire on October 2, 2001 unless
extended by the Company.
Executive Employment Contracts, Termination of Employment
and Change in Control Arrangements
In light of the cost-cutting measures recently undertaken by the Company, Ira B.
Lampert, Brian F. King, Keith L. Lampert, Urs W. Stampfli and Harlan I. Press
all voluntarily agreed, on a verbal basis, to a decrease in their base salaries
of approximately 11% effective as of July 1, 2001.
-35-
Pursuant to the employment agreement between the Company and Ira B. Lampert
dated as of May 1, 1997, as amended (the "Lampert Agreement"), Mr. Lampert
serves in the capacities of Chairman, Chief Executive Officer and President of
the Company. The Lampert Agreement provides for an annual salary of $900,000
(voluntarily reduced effective as of July 1, 2001 to $800,000 per annum), has a
term of four years and provides for the term of employment to be automatically
extended for one additional day for each day of the term of employment during
which neither party notifies the other that the term should not be extended. The
Lampert Agreement prohibits Mr. Lampert from competing with the Company for a
one-year period following the termination of his employment with the Company.
Pursuant to the Lampert Agreement, the Company adopted a supplemental executive
retirement plan which was later amended and restated as of April 19, 2000 (the
"Lampert SERP") for the benefit of Mr. Lampert. A specified amount, currently
$500,000, is credited to the Lampert SERP account each year (the "Yearly
Credit"). The Yearly Credits are 100% vested and not subject to forfeiture. Each
time the Company credits a Yearly Credit to the Lampert SERP account, the
Company simultaneously contributes an amount equal to such credit to a trust
established for the purpose of accumulating funds to satisfy the obligations
incurred by the Company pursuant to the Lampert SERP.
The Terms of Employment between the Company and Brian F. King, Senior Vice
President, dated effective as of January 1, 2000, provided for an annual salary
of $400,000, which increased to $450,000 effective January 1, 2001 (voluntarily
reduced effective as of July 1, 2001 to $400,000 per annum). The agreement
expires on January 2, 2003, unless renewed by mutual agreement of the parties,
and may be terminated by the Company on thirty days' notice. Under this
agreement, if the Company terminates Mr. King's employment at any time without
cause or if Mr. King terminates his employment after January 1, 2003, he is
entitled to severance payments equal to one year's base salary plus his
automobile allowance, and the deferred compensation described below. The
agreement also prohibits Mr. King from competing with the Company for one year
following the termination of his employment with the Company.
The Terms of Employment between the Company and Keith L. Lampert, Vice President
of Worldwide Operations of the Company and Managing Director of Concord HK,
dated effective as of January 1, 2000, provided for an annual salary of
$225,000, which increased to $255,000 effective January 1, 2001 (voluntarily
reduced effective as of July 1, 2001 to $225,000 per annum). The agreement also
provides for an overseas allowance of $25,000 per year while Mr. Lampert is on
assignment overseas. It expires on January 2, 2003, unless renewed by mutual
agreement of the parties, and may be terminated by the Company on thirty days'
notice. Under this agreement, if the Company terminates Mr. Lampert's employment
at any time without cause or if Mr. Lampert terminates his employment after
January 1, 2003, he is entitled to severance payments equal to one year's base
salary plus his overseas allowance, automobile allowance and the deferred
compensation described below. The agreement also prohibits Mr. Lampert from
competing with the Company for one year following the termination of his
employment with the Company.
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The Terms of Employment between the Company and Urs W. Stampfli, Vice President
and Director of Global Sales and Marketing, dated effective as of January 1,
2000, provided for an annual salary of $210,000, which increased to $236,800
effective January 1, 2001 (voluntarily reduced effective as of July 1, 2001 to
$210,000 per annum). The agreement expires on January 2, 2003, unless renewed by
mutual agreement of the parties, and may be terminated by the Company on thirty
days' notice. Under this agreement, if the Company terminates Mr. Stampfli's
employment at any time without cause or if Mr. Stampfli terminates his
employment after January 1, 2003, he is entitled to severance payments equal to
one year's base salary plus his automobile allowance and the deferred
compensation described below. The agreement also prohibits Mr. Stampfli from
competing with the Company for one year following the termination of his
employment with the Company.
The Terms of Employment between the Company and Harlan I. Press, Vice President
and Treasurer, dated effective as of January 1, 2000, provided for an annual
salary of $160,000, which increased to $180,000 effective January 1, 2001
(voluntarily reduced effective as of July 1, 2001 to $160,000 per annum). The
agreement expires on January 2, 2003, unless renewed by mutual agreement of the
parties, and may be terminated by the Company on thirty days' notice. Under this
agreement, if the Company terminates Mr. Press' employment at any time without
cause or if Mr. Press terminates his employment after January 1, 2003, he is
entitled to severance payments equal to one year's base salary plus his
automobile allowance and the deferred compensation described below. The
agreement also prohibits Mr. Press from competing with the Company for one year
following the termination of his employment with the Company.
In connection with a one-time grant of deferred compensation to the following
executive officers, effective as of April 19, 2000, the Company adopted a
Supplemental Executive Retirement Plan and Agreement for the benefit of each of
Brian F. King, Keith L. Lampert, Urs W. Stampfli and Harlan I. Press (the
"Executive SERPs"). The Company simultaneously contributed the following amounts
to trusts established for the purpose of holding funds to satisfy the Company's
obligations under each of the Executive SERPs: (i) under the plan for Brian F.
King, $750,000; (ii) under the plan for Keith L. Lampert, $450,000, (iii) under
the plan for Harlan I. Press, $165,000, and (iv) under the plan for Urs W.
Stampfli, $110,000. The amounts in the Executive SERP accounts vest, so long as
the executive continues to be employed by the Company, in three equal annual
installments beginning January 1, 2001 or immediately upon: (i) a change of
control of the Company; or (ii) a termination of the executive's employment by
the Company without cause. The Company simultaneously approved a one-time grant
of deferred compensation to Ira B. Lampert in the amount of $1,549,999 with the
same vesting schedule as under the Executive SERPs. The Lampert SERP includes
appropriate terms to govern the one-time grant of deferred compensation to Mr.
Lampert.
Directors Compensation
During Fiscal 2001, each non-employee member of the Board of Directors was paid
the following: (i) an annual fee of $15,000 for serving on the Board; (ii) a
$2,500 annual fee for each Board committee on which he served ($3,500 for
serving as Chairman); and (iii) $1,000 for each Board or committee meeting
attended. In light of the cost-cutting measures recently undertaken by the
Company, the annual fee payable to each non-employee Board member for serving on
the Board was reduced from $15,000 to $12,000 effective July 1, 2001.
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In addition, pursuant to the Company's Incentive Plan, each non-employee
director automatically receives the following options to purchase shares of the
Common Stock. Upon appointment to the Board, each non-employee director
receives: (i) an option to purchase up to 40,000 shares, vesting as to 8,000
shares on the following January 1 and on each January 1 thereafter (provided
that, if a director fails to attend at least 75% of the Board meetings in any
calendar year, then the options that would have vested on the next January 1 are
forfeited); and (ii) an immediately exercisable option to purchase 13,000
shares. On each anniversary of his appointment, each non-employee director
receives another immediately exercisable option to purchase 13,000 shares. All
of the foregoing options have an exercise price equal to the closing price of
the Common Stock on the date of grant and expire on the earlier of: (i) five
years from the grant date; or (ii) one year after the grantee ceases to be a
member of the Board.
Our directors are eligible to participate in the exchange offer described above
under the caption "Stock Options." As such, outstanding options having an
exercise price of more than $7.00 per share that were granted to our directors
may be tendered to the Company in the exchange offer.
Effective July 19, 2001, the Company amended the outstanding, fully vested
options held by three former directors to permit such options to be exercised
until their stated expiration date, in light of the valuable years of advice and
service that had been provided during the eight-to-ten years of their tenure as
members of the Board of Directors. These former directors are also eligible to
participate in the exchange offer described above under the caption "Stock
Options."
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Item 12. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth certain information as of August 2, 2001, with
respect to: (i) those persons or groups known to the Company to beneficially own
more than 5% of the Common Stock; (ii) each director of the Company; (iii) each
executive officer named in the "Summary Compensation Table"; and (iv) the
Company's directors and executive officers as a group:
Amount and Nature of Percent
Name of Beneficial Owner Beneficial Ownership(1) of Class(1)
------------------------ ---------------------- -----------
(i) Beneficial Owners of More than 5% of the Common Stock
"MEP Group" of Company Officers or
Employees as described in (2) below 3,075,813(2) 10.3%
Concord Camera Corp.
4000 Hollywood Boulevard
Presidential Circle - 6th Floor, North Tower
Hollywood, Florida 33021
(ii) Directors
Ira B. Lampert 1,997,517(2)(3) 6.9%
Ronald S. Cooper 47,000(4) *
Morris H. Gindi 84,500(5) *
J. David Hakman 348,500(6) 1.3%
William J. Lloyd 34,000(7) *
William J. O'Neill, Jr. 13,000(8) *
(iii) Named Executive Officers
Brian F. King.................................................... 480,932(2)(9) 1.7%
Keith L. Lampert................................................ 406,560(2)(10) 1.5%
Harlan I. Press................................................... 158,738(2)(11) *
Urs W. Stampfli................................................ 83,825(12) *
(iv) All executive officers and directors as a group (11 persons) 3,717,838 12.3%
--------------------
* Indicates less than one percent (1%).
(1) For purposes of this table, beneficial ownership was determined in
accordance with Rule 13d-3 under the Securities Exchange Act of 1934, as
amended (the "Exchange Act") based upon information furnished by the
persons listed or contained in filings made by them with the Securities and
Exchange Commission; the inclusion of shares as beneficially owned should
not be construed as an admission that such shares are beneficially owned
for purposes of Section 16 of the Exchange Act. As of August 2, 2001, the
Company had 27,414,208 shares of Common Stock issued and outstanding. All
shares were owned directly with sole voting and investment power unless
otherwise indicated.
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(2) As of August 2, 2001, a group comprised of five officers or employees of
the Company (Messrs. Ira B. Lampert, Brian F. King, Keith L. Lampert,
Harlan I. Press and Arthur Zawodny) (collectively, the "MEP Group")
beneficially owned, in the aggregate, 662,100 shares and options to
purchase 2,413,713 shares of Common Stock, or 10.3% of 29,827,921 (the
number of shares outstanding on that date plus the number of shares that
would have been outstanding if all options held by the members of the MEP
Group which were exercisable within 60 days of August 2, 2001 were
exercised). Of that total, 316,400 shares and options to purchase 780,666
shares of Common Stock were purchased under the Management Equity
Provisions ("MEP") of the Company's Incentive Plan and are subject to the
terms of an Amended and Restated Voting Agreement, dated February 28, 1997,
as amended (the "Voting Agreement") pursuant to which MEP shares are voted
in accordance with the will of the holders of a majority of the shares
governed by the Voting Agreement. The balance of 345,700 shares and options
to purchase 1,633,047 shares of Common Stock were purchased or held outside
the MEP. See "Certain Relationships and Related Transactions" below.
(3) Represents 1,481,817 shares that may be acquired pursuant to stock options
exercisable within 60 days of August 2, 2001, 490,700 shares owned, as to
all of which Mr. Lampert has sole dispositive power, and 25,000 shares held
by a ss.501(c)(3) charitable trust of which Mr. Lampert is a trustee with
voting and dispositive power. Since Mr. Lampert is part of the MEP Group,
the shares beneficially owned by him are included in footnote (2) above;
the MEP Group is deemed to have acquired the shares beneficially owned by
any member of the MEP Group described in footnote (2) above.
(4) Includes 34,000 shares that may be acquired pursuant to stock options
exercisable within 60 days of August 2, 2001.
(5) Includes 51,000 shares that may be acquired pursuant to stock options
exercisable within 60 days of August 2, 2001, 1,000 shares held by his son,
and 15,000 shares held by the Notra Trading Inc. Profit Sharing Plan &
Trust, a retirement plan of which Mr. Gindi is a co-trustee and
participant.
(6) Represents: (i) 51,000 shares that may be acquired pursuant to stock
options, and 20,000 shares that may be acquired pursuant to a warrant, both
of which are exercisable within 60 days of August 2, 2001; and (ii) 84,500
shares held by the Hakman Family Trust, of which Mr. Hakman is a trustee
and beneficiary, 30,000 shares held by the Hakman Capital Corporation
Profit Sharing Plan and Trust, and 163,000 shares held by a corporation
controlled by Mr. Hakman.
(7) Represents 34,000 shares that may be acquired pursuant to stock options
exercisable within 60 days of August 2, 2001.
(8) Represents 13,000 shares that may be acquired pursuant to stock options
exercisable within 60 days of August 2, 2001.
(9) Represents 480,932 shares that may be acquired pursuant to stock options
exercisable within 60 days of August 2, 2001. Since Mr. King is part of the
MEP Group, the shares beneficially owned by him are included in footnote
(2) above; the MEP Group is deemed to have acquired the shares beneficially
owned by any member of the MEP Group described in footnote (2) above.
(10) Represents 346,560 shares that may be acquired pursuant to stock options
exercisable within 60 days of August 2, 2001 and 60,000 shares owned, as to
all of which Keith Lampert has sole dispositive power. Since Mr. Lampert is
part of the MEP Group, the shares beneficially owned by him are included in
footnote (2) above; the MEP Group is deemed to have acquired the shares
beneficially owned by any member of the MEP Group described in footnote (2)
above.
(11) Represents 80,738 shares that may be acquired pursuant to stock options
exercisable within 60 days of August 2, 2001 and 78,000 shares owned, as to
all of which Mr. Press has sole dispositive power. Since Mr. Press is part
of the MEP Group, the shares beneficially owned by him are included in
footnote (2) above; the MEP Group is deemed to have acquired the shares
beneficially owned by any member of the MEP Group described in footnote (2)
above.
(12) Includes 73,825 shares that may be acquired pursuant to stock options
exercisable within 60 days of August 2, 2001.
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Item 13. Certain Relationships and Related Transactions
Consulting Arrangement with Director
A corporation controlled by J. David Hakman has provided consulting services to
the Company since 1997 pursuant to an engagement agreement entered into on
September 25, 1997, as later amended and supplemented (the "Hakman Agreement").
Pursuant to the Hakman Agreement, the Company granted a warrant to purchase up
to 260,000 shares of Common Stock at an exercise price of $2.25 per share to the
corporation controlled by Mr. Hakman. In October 2000, the corporation exercised
the warrant as to all 113,000 shares that had vested up until that time. As of
August 2, 2001, 147,000 shares remained subject to the warrant and 20,000 of
those shares were vested and exercisable.
Transactions under the Management Equity Provisions of the Incentive Plan
On August 23, 1995, the Compensation Committee of the Board approved stock
purchase awards under the Management Equity Provisions of the Company's
Incentive Plan pursuant to which 1,000,000 shares of Common Stock were made
available for purchase by senior management of the Company at a price per share
equal to $2.6875 per share (the closing price of the Common Stock on August 23,
1995, as adjusted for the two-for-one stock split effective on April 14, 2000)
pursuant to binding commitments to be made by such persons by August 31, 1995.
The Company received commitments for the purchase of 888,000 shares (the
"Purchased Shares"). Each purchaser was also granted the right to receive a
contingent restricted stock award covering a number of shares equal to the
number of shares he had purchased based upon attainment of increases in
shareholder value in accordance with the Incentive Plan. If issued, such
contingent restricted shares were to vest over a three-year period and were
subject to forfeiture prior to vesting under certain conditions.
In November 1995, members of the Company's senior management entered into
purchase agreements (the "Purchase Agreements") for the Purchased Shares.
Pursuant to the Purchase Agreements, each purchaser executed a full recourse
note for the purchase price of such shares (each a "Note"; collectively, the
"Notes") and pledged the Purchased Shares as security for the payment of the
Note. The Notes bear interest at an annual rate of 6%. Concurrently with the
execution of their respective Purchase Agreements and Notes, each purchaser
entered into a Voting Agreement pursuant to which each purchaser agreed to vote
all of his Purchased Shares and contingent restricted stock in accordance with
the determination of the holders of a majority of all of the Purchased Shares
and contingent restricted stock held by the purchasers. To effect the foregoing,
each of the purchasers delivered an irrevocable proxy to Ira B. Lampert and
agreed that prior to any transfer of Purchased Shares and contingent restricted
stock, such purchaser would cause the transferee (i) to agree in writing with
Mr. Lampert to be bound by the provisions of the Voting Agreement with respect
to such shares and (ii) to execute and deliver to Mr. Lampert an irrevocable
proxy.
Pursuant to Amendments to each of the Purchase Agreements dated February 28,
1997 (the "Amendments"), the Company was relieved of its obligation to issue any
contingent restricted stock. Instead, each participating member of the Company's
senior management received, as of December 22, 1996, options to purchase that
number of shares of Common Stock (the "Option Shares") equal to the number of
Purchased Shares purchased by such person, at an exercise price of $0.9063 per
share. The options vested as to 20% of the Option Shares covered thereby as of
December 22, 1996, and the balance of the shares covered thereby began vesting
December 31, 1996 in equal monthly installments over a four-year period during
the term of employment or consultancy. The unvested portion became vested on
August 19, 1998 when the average closing price of the Common Stock was at least
$5.00 (pre-split adjustment) for 90 consecutive trading days. Concurrently with
the Amendments, the Voting Agreement and the irrevocable proxies were amended
and restated to include the Option Shares and delete any mention of the
contingent restricted stock.
-41-
In April 1999, the Board approved a conditional release program whereby the
Company agreed to forgive a portion of the indebtedness represented by each Note
and concurrently release a proportionate number of Purchased Shares held by the
Company as security for payment of the Notes. The debt forgiveness and share
release program (the "Release Program") began on May 1, 1999 and will continue
on January 1 each year through January 1, 2003. The total principal sum subject
to forgiveness under the Release Program is $2,386,500, together with interest
owed under the Notes. The debt forgiveness is conditioned upon the person's
continued employment with the Company. If a person ceases to be an employee or
consultant of the Company prior to full forgiveness of the debt, the principal
amount of the Note will immediately become due and payable, including any
amounts scheduled to be forgiven at a future date.
As contemplated by the Management Equity Provisions, subsequent to 1995 certain
Purchased Shares and the related options were transferred to other eligible
members of the Company's senior management upon their execution of the required
agreements and Notes. Notes previously delivered to secure payment for such
shares were canceled upon delivery of new Notes by current members. The
Purchased Shares and options awarded pursuant to the Management Equity
Provisions are presently held by Ira B. Lampert, Brian F. King, Keith L.
Lampert, Harlan I. Press and Arthur Zawodny.
In January 2000, the Board further provided that a participant in the Management
Equity Provisions would have the right to prepay all or any portion of the
indebtedness represented by a Note issued in connection with the purchase of
shares, and that the amount so prepaid would be repaid to the participant as
deferred compensation at such time as the amount would otherwise have been
forgiven in accordance with the Release Program.
-42-
The following are the scheduled release dates, and the total amounts that are
(or were, as the case may be) to be forgiven* on such dates, under the Release
Program.
Total Principal Total Purchased
Indebtedness Forgiven Shares Released
Releasee Release Dates or to be Forgiven or to be Released
-------- ------------- ----------------------- ------------------
Brian F. King................ May 1, 1999, and January 1st of $430,000* 160,000
2000, 2001, 2002 and 2003
Ira B. Lampert............... May 1, 1999, and January 1st of $1,612,500* 600,000
2000, 2001, 2002 and 2003
Keith L. Lampert............. May 1, 1999, and January 1st of $295,625* 110,000
2000, 2001, 2002 and 2003
Harlan I. Press.............. January 6, 2000, and January 1st of $10,750 4,000
2001, 2002 and 2003
Arthur Zawodny............... May 1, 1999, and January 1st of $37,625 14,000
2000, 2001, 2002 and 2003
-----------
* After the January 1, 2000 release date, the balance of these amounts were
repaid in full. Ira B. Lampert, Brian King and Keith Lampert have each prepaid
in full the balance of the debts represented by their Notes and, assuming their
continued employment with the Company, will be entitled to receive deferred
compensation in lieu of the amounts scheduled to be forgiven under the Release
Program.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(a) (1) and (2) Financial Statements and Financial Statement Schedule
The following consolidated financial statements of the Company and the notes
thereto, the related reports thereon of the certified public accountants and
financial statement schedule are filed under Item 8 of this report:
(a)(1) Financial Statements Page
Report of Independent Certified Public Accountants......................................F-1
Consolidated Balance Sheets at June 30, 2001 and July 1, 2000...........................F-2
Consolidated Statements of Operations for the years ended
June 30, 2001, July 1, 2000 and July 3, 1999........................................F-3
Consolidated Statements of Stockholders' Equity for the years
ended June 30, 2001, July 1, 2000 and July 3, 1999..................................F-4
Consolidated Statements of Cash Flows for the years
ended June 30, 2001, July 1, 2000 and July 3, 1999..................................F-5
Notes to Consolidated Financial Statements..............................................F-6
(a)(2) Financial Statement Schedule
Schedule II--Valuation and Qualifying Accounts and Reserves F-30
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All other financial statement schedules for which provision is made in the
applicable accounting regulations of the SEC are not required under the
instructions to Item 8 or are inapplicable and therefore have been omitted.
(a)(3) Exhibits
No. Description Method of Filing
-- ----------- ----------------
3.1 Certificate of Incorporation, as amended through Incorporated by reference to the Company's
May 9, 2000 annual report on Form 10-K for the year ended
July 1, 2000.
3.2 Restated By-Laws, as amended through December 21, 2000 Incorporated by reference to the Company's
quarterly report on Form 10-Q for the quarter
ended December 30, 2000.
4.1 Form of Common Stock Certificate Incorporated by reference to the Company's
registration statement on Form 8-A filed
September 20, 2000.
4.2 Purchase Agreement, dated July 30, 1998, between Incorporated by reference to the Company's
Dreyfus High Yield Strategies Fund and the Company annual report on Form 10-K for the year ended
June 30, 1998.
4.3 Indenture, dated July 30, 1998, between Bankers Incorporated by reference to the Company's
Trust Company and the Company annual report on Form 10-K for the year ended
June 30, 1998.
4.4 Registration Rights Agreement, dated July 3, Incorporated by reference to the Company's
1998, between Dreyfus High Yield Strategies annual report on Form 10-K for the year ended
Fund and the Company June 30, 1998.
9.1 Amended and Restated Voting Agreement, dated Incorporated by reference to the Company's
February 28, 1997, among the parties signatory annual report on Form 10-K for the year ended
thereto, including among others, Ira B. Lampert, July 1, 2000.
Brian King and Arthur Zawodny, as amended on
various dates in 1998 to add certain additional
shares of the Company's Common Stock owned by Ira
B. Lampert, Brian King and Keith Lampert and as
further amended on January 6, 2000 to add certain
shares owned by Harlan Press
10.1 Settlement Agreement between the Company and the Incorporated by reference to the Company's
Commission effective September 1, 1994 annual report on Form 10-K for the year ended
June 30, 1994.
10.2 Pledge Agreements between the Company and Benun Incorporated by reference to the Company's
dated as of March 7, 1994 and April 6, 1994 quarterly report on Form 10-Q for the quarter
ended March 31, 1994.
10.3 Master Processing Contract No. (86)507 with Incorporated by reference to the Company's
Shenzhen Baoan County Foreign Trade Company and quarterly report on Form 10-Q for the quarter
Baoan Henggang Concord Electronics Factory, dated ended September 30, 2000.
October 28, 1986, and approval certificate issued
November 1, 1986 by the Baoan Commission of Foreign
Trade and Economic Cooperation (English
translations)
10.4 First renewal agreement of Master Processing Incorporated by reference to the Company's
Contract No. (86)507, dated June 22, 1991, and quarterly report on Form 10-Q for the quarter
approval notice issued by the Baoan Office of ended September 30, 2000.
Foreign Trade (English translations)
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10.5 Second renewal agreement of Master Processing Incorporated by reference to the Company's
Contract No. (86)507, dated March 15, 1996, and quarterly report on Form 10-Q for the quarter
approval notice issued by the Longgang Economic ended September 30, 2000.
Development Bureau (English translations)
10.6 Contract for Grant of State-Owned Land Use Right, Incorporated by reference to the Company's
dated November 8, 1994, with the Shenzhen Land quarterly report on Form 10-Q for the quarter
Bureau (English translation) ended September 30, 2000.
10.7 Compensation Trade Agreement between Concord HK and Incorporated by reference to the Company's
Shenzhen Baoan Contat Camera Factory and current report on Form 8-K dated November 23, 1993
translation dated November 23, 1993
10.8 Supplementary Agreement, dated September 27, 1985, Incorporated by reference to the Company's
between Dialbright Company Limited and Baoan County Registration Statement on Form S-18 (No.
Foreign Trade Company and Dialbright Electronic 33-21156), declared effective July 12, 1988
Factory, Henggang, Baoan County and translations
10.9 Notice Concerning the Approval of Supplementary Incorporated by reference to the Company's
Agreement dated September 27, 1985 issued by the Registration Statement on Form S-18 (No. 33-21156),
Foreign Economic Relations Office, Baoan County on declared effective July 12, 1988
October 4, 1985 and translations
10.10 Supplementary Agreement, dated October 30, 1985, Incorporated by reference to the Company's
between Dialbright Company Limited and Baoan County Registration Statement on Form S-18 (No.
Foreign Trade Company and Dialbright Electronic 33-21156), declared effective July 12, 1988
Factory, Henggang, Baoan County and translations
10.11 Supplementary Agreement, dated July 9, 1986, Incorporated by reference to the Company's
between Dialbright Company Limited and Baoan County Registration Statement on Form S-18 (No.
Foreign Trade Company and Dialbright Electronic 33-21156), declared effective July 12, 1988
Factory, Henggang, Baoan County and translations
-45-
10.12 Supplementary Agreement, dated August 26, 1986, Incorporated by reference to the Company's
between Dialbright Company Limited and Baoan County Registration Statement on Form S-18 (No.
Foreign Trade Company and Dialbright Electronic 33-21156), declared effective July 12, 1988
Factory, Henggang, Baoan County and translations
10.13 Agreement for the Provision of Land, Management Incorporated by reference to the Company's
Services and Labor between Company annual report on Form 10-K for the year ended
and Wan Kong Economic Development Corporation of June 30, 1989.
Baoan County, dated July 10, 1988 (English
Translation with Chinese Original
attached)
10.14 Agreement between Dialbright and Development Incorporated by reference to the Company's
Corporation, Baoan County, dated September 23, 1988 annual report on Form 10-K for the year ended
June 30, 1989.
10.15 Agreement between Dialbright and Henggang Economic Incorporated by reference to the Company's
Development Corporation, dated September 23, 1988 annual report on Form 10-K for the year ended
and translation June 30, 1989.
10.16 Construction Works Contract between Concord Factory Incorporated by reference to the Company's
Henggang and Henggang Economic Development annual report on Form 10-K for the year ended
Corporation dated February 25, 1989 and translation June 30, 1989.
10.17 Supplemental Agreement to the Contract for the Incorporated by reference to the Company's
Utilization of Land in Factory Construction between annual report on Form 10-K for the year ended
Concord HK and Henggang Investment Holdings Limited June 30, 1994.
dated June 20, 1994 and translation
10.18 Hong Kong Credit Facility and Factoring Agreement, Incorporated by reference to the Company's
dated September 8, 1999, between The Hongkong and quarterly report on Form 10-Q for the quarter
Shanghai Banking Corporation Limited ("HSBC") and ended January 1, 2000.
Concord HK
10.19 Letter agreements between HSBC and Concord HK dated Incorporated by reference to the Company's
April 30, 1999, June 17, 1999, July 26, 1999, current report on Form 8-K filed September 21,
September 8, 1999, November 1, 1999, July 31, 2000 2000.
-46-
and August 7, 2000, relating to and amending the
Hong Kong Credit Facility and Factoring Agreement
10.20 Letter agreement between HSBC and Concord HK dated Filed herewith.
June 4, 2001, relating to and amending the Hong
Kong Credit Facility
10.21 Amended and Restated 1988 Stock Option Plan Incorporated by reference to the Company's
Registration Statement on Form S-1 (33-59398),
filed on March 11, 1993.
10.22 Incentive Plan (1993), as amended through April 24, Incorporated by reference to the Company's
2000 annual report on Form 10-K for the year ended
July 1, 2000.
10.23 Amendments to the Incentive Plan (1993) dated as of Incorporated by reference to the Company's
April 19, 2001 and August 2, 2001 Schedule TO/A-1 filed August 28, 2001
10.24 Amended and Restated Employment Agreement, dated as Incorporated by reference to the Company's
of May 1, 1997, between the Company and Ira B. annual report on Form 10-K for the year ended
Lampert June 30, 1997.
10.25 Amendment No. 1, dated as of August 25, 1998, to Filed herewith.
Amended and Restated Employment Agreement dated as
of May 1, 1997, between Ira B. Lampert and the
Company
10.26 Amendment No. 2, dated as of January 1, 1999, to Incorporated by reference to the Company's
Amended and Restated Employment Agreement dated as quarterly report on Form 10-Q for the quarter
of May 1, 1997, between Ira B. Lampert and the ended January 2, 1999.
Company
10.27 Amendment No. 3, dated as of April 19, 2000, to Filed herewith.
Amended and Restated Employment Agreement dated as
of May 1, 1997, between Ira B. Lampert and the
Company
10.28 Amendment No. 4, dated as of January 1, 2001, to Filed herewith.
Amended and Restated Employment Agreement dated as
of May 1, 1997, between Ira B. Lampert and the
Company
-47-
10.29 Deferral Agreement, dated as of May 1, 1997, Incorporated by reference to the Company's
between Concord Camera Corp. and Ira B. Lampert quarterly report on Form 10-Q for the quarter
ended January 2, 1999.
10.30 Amended and Restated Supplemental Executive Filed herewith.
Retirement Plan and Agreement dated as of April 19,
2000, between Ira B. Lampert and the Company
10.31 Amendment No. 1, dated as of January 1, 2001, to Filed herewith.
Amended and Restated Supplemental Executive
Retirement Plan and Agreement dated as of April 19,
2000, between Ira B. Lampert and the Company
10.32 Terms of Employment between Brian F. King and the Filed herewith.
Company, effective as of January 1, 2000
10.33 Terms of Employment between Harlan I. Press and the Filed herewith.
Company, effective as of January 1, 2000
10.34 Terms of Employment between Urs W. Stampfli and the Filed herewith.
Company, effective as of January 1, 2000
10.35 Terms of Employment between Keith L. Lampert and Filed herewith.
the Company, effective as of January 1, 2000
10.36 Form of Supplemental Executive Retirement Plan and Incorporated by reference to the Company's
Agreement, dated as of April 19, 2000, between the annual report on Form 10-K for the year ended
Company and each of certain executive officers July 1, 2000.
10.37 Form of Amendment to the Supplemental Executive Filed herewith.
Retirement Plan and Agreement, dated as of April
19, 2000, between the Company and each of certain
executive officers
-48-
10.38 Lease Agreement, undated between Prologis Trust, a Incorporated by reference to the Company's
Maryland real estate investment trust, and the quarterly report on Form 10-Q for the quarter
Company ended January 2, 1999.
10.39 Lease Agreement, dated as of August 12, 1998, Incorporated by reference to the Company's
between CarrAmerica Realty Corp. and the Company quarterly report on Form 10-Q for the quarter
ended January 2, 1999.
10.40 First Amendment, dated October 12, 1999, to Lease Incorporated by reference to the Company's
dated as of August 12, 1998, between CarrAmerica quarterly report on Form 10-Q for the quarter
Realty Corp. and the Company ended October 2, 1999.
10.41 Second Amendment, dated January 3, 2000, to Lease Incorporated by reference to the Company's
dated as of August 12, 1998, between CarrAmerica annual report on Form 10-K for the year ended
Realty Corp. and the Company July 1, 2000.
21 Subsidiaries of the Company Incorporated by reference to the Company's
annual report on Form 10-K for the year ended
July 1, 2000.
23 Consent of Independent Certified Public Filed herewith.
Accountants
The Financial Statement Schedules required to be filed pursuant to this Item
14(d) are listed above.
(b) Reports on Form 8-K.
On April 2, 2001, the Company 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 Company and Jack C. Benun.
-49-
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
CONCORD CAMERA CORP.
Date: September 28, 2001. By: /s/ Ira B. Lampert
-------------------------------
Ira B. Lampert, Chairman, Chief
Executive Officer and President
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Name Capacity Date
---- -------- ----
/s/ Ira B. Lampert
------------------------------- Chairman of the Board, Chief September 28, 2001
Ira B. Lampert Executive Officer and President
(Principal Executive Officer)
/s/ Harlan I. Press
-------------------------------- Vice President and Treasurer September 28, 2001
Harlan I. Press (Principal Financial Officer
and Principal Accounting
Officer)
/s/ Ronald S. Cooper
--------------------------------- Director September 28, 2001
Ronald S. Cooper
/s/ Morris H. Gindi
--------------------------------- Director September 28, 2001
Morris H. Gindi
/s/ J. David Hakman
--------------------------------- Director September 28, 2001
J. David Hakman
/s/ William J. Lloyd
--------------------------------- Director September 28, 2001
William J. Lloyd
/s/ William J. O'Neill, Jr.
--------------------------------- Director September 28, 2001
William J. O'Neill, Jr.
-50-
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Shareholders
Concord Camera Corp.
We have audited the accompanying consolidated balance sheets of Concord Camera
Corp. and subsidiaries as of June 30, 2001 and July 1, 2000, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
each of the three years in the period ended June 30, 2001. Our audits also
included the financial statement schedule listed in the Index at Item 14(a).
These financial statements and schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and schedule based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Concord
Camera Corp. and subsidiaries as of June 30, 2001 and July 1, 2000, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended June 30, 2001, in conformity with accounting
principles generally accepted in the United States. Also in our opinion, the
related financial statement schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.
Ernst & Young LLP
Miami, Florida
July 25, 2001,
except for Note 18, as to which the date is August 28, 2001
F-1
Concord Camera Corp. and Subsidiaries
Consolidated Balance Sheets
June 30, 2001 July 1, 2000
------------- ------------
Assets
Current Assets:
Cash and cash equivalents $ 57,474,828 $ 24,390,294
Short-term investments 49,869,567 -
Accounts receivable, net 25,253,614 33,570,047
Inventories 30,766,198 31,603,147
Prepaid expenses and other current assets 4,128,858 7,374,719
------------- --------------
Total current assets 167,493,065 96,938,207
Property, plant and equipment, net 24,396,407 22,810,021
Goodwill, net 3,720,528 3,561,770
Other assets 18,055,713 10,693,442
------------- --------------
Total assets $ 213,665,713 $ 134,003,440
============= ==============
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable $ 17,991,337 $ 25,510,625
Accrued expenses 14,437,104 12,788,653
Short-term debt - 2,190,263
Current portion of obligations under capital leases 503,547 1,252,967
Income taxes payable 1,010,066 2,024,157
Other current liabilities 2,547,719 571,706
------------- --------------
Total current liabilities 36,489,773 44,338,371
Senior notes 14,912,501 14,891,071
Obligations under capital leases, net of current portion - 1,221,128
Other long-term liabilities 7,926,290 7,262,903
------------- --------------
Total liabilities 59,328,564 67,713,473
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; 28,911,734 and 23,825,734 shares
issued as of June 30, 2001 and July 1, 2000,
respectively 140,255,065 42,145,256
Paid-in capital 4,321,856 2,625,828
Retained earnings 13,914,908 25,685,258
Notes receivable arising from common stock purchase
agreements (17,542) (29,237)
------------- --------------
158,474,287 70,427,105
Less: treasury stock, at cost, 1,542,526 shares (4,137,138) (4,137,138)
------------- --------------
Total stockholders' equity 154,337,149 66,289,967
------------- --------------
Total liabilities and stockholders' equity $ 213,665,713 $ 134,003,440
============= ==============
See accompanying notes.
F-2
Concord Camera Corp. and Subsidiaries
Consolidated Statements of Operations
Year Ended
----------
June 30, 2001 July 1, 2000 July 3, 1999
------------- ------------ ------------
Net sales $ 183,412,647 $ 173,158,034 $118,418,074
Cost of products sold 152,597,558 126,147,774 86,664,126
-------------- ------------- ------------
Gross profit 30,815,089 47,010,260 31,753,948
Selling expenses 11,500,108 11,143,074 7,922,140
General and administrative expenses 33,314,782 16,633,210 12,215,870
Terminated acquisition costs 800,207 - -
Interest expense 2,792,616 3,268,560 3,454,717
Other income, net (4,891,425) (881,762) (440,872)
-------------- ------------- ------------
(Loss) income before income taxes (12,701,199) 16,847,178 8,602,093
(Benefit) provision for income taxes (930,849) (2,751,389) 893,187
-------------- ------------- ------------
Net (loss) income ($11,770,350) $ 19,598,567 $ 7,708,906
============== ============ ===========
Basic (loss) earnings per share ($0.45) $0.89 $0.35
============== ============= ============
Diluted (loss) earnings per share ($0.45) $0.81 $0.33
============== ============= ============
Weighted average
common shares outstanding-basic 25,991,868 21,989,381 21,980,790
Effect of dilutive securities-stock options - 2,324,087 1,177,456
-------------- ------------- ------------
Weighted average
common shares outstanding-diluted 25,991,868 24,313,468 23,158,246
============== ============= ============
See accompanying notes.
F-3
Concord Camera Corp. and Subsidiaries
Consolidated Statements of Stockholders' Equity
Notes receivable
Common Stock Retained arising from
------------ Earnings common stock Treasury Stock
Issued Stated Paid-in- (Accumulated purchase -----------------
Shares Value Capital Deficit) agreements Shares Cost Total
------ ------ -------- ------------ --------------- ------ ---- ------
Balance as of June 30, 1998 22,428,902 $40,094,559 $850,786 ($1,622,215) ($2,765,463) 127,106 ($452,919) $36,104,748
Exercise of stock options
and warrants 830,282 1,022,776 - - - - - 1,022,776
Interest on notes receivable
arising from common stock
purchase agreements - - - - (142,400) - - (142,400)
Officers' note forgiven
on stock purchases - - - - 744,321 - - 744,321
Purchase of treasury stock,
at cost - - - - - 1,224,620 (2,925,593) (2,925,593)
Compensation expense on
stock options - - 182,767 - - - - 182,767
Net income - - 7,708,906 - - - 7,708,906
------------------------------------------------------------------------------------------------------
Balance as of July 3, 1999 23,259,184 41,117,335 1,033,553 6,086,691 (2,163,542) 1,351,726 (3,378,512) 42,695,525
Exercise of stock options
and warrants 566,550 1,027,921 - - - - - 1,027,921
Interest on notes receivable
arising from common stock
purchase agreements - - - - (85,190) - - (85,190)
Officers' note forgiven
on stock purchases - - - - 452,965 - - 452,965
Officers' notes paid on
stock purchases - - - - 1,766,530 - - 1,766,530
Purchase of treasury stock,
at cost - - - - - 190,800 (758,626) (758,626)
Stock option issuance related
to non-employees - - 1,592,275 - - - - 1,592,275
Net income - - 19,598,567 - - - 19,598,567
------------------------------------------------------------------------------------------------------
Balance as of July 1, 2000 23,825,734 42,145,256 2,625,828 25,685,258 (29,237) 1,542,526 (4,137,138) 66,289,967
Issuance of common stock,
net 4,485,000 96,881,243 96,881,243
Exercise of stock options
and warrants 601,000 1,228,566 - - - - - 1,228,566
Income tax benefit from
stock options exercised 1,696,028 1,696,028
Interest on notes receivable
arising from common stock
purchase agreements - - - - (1,754) - - (1,754)
Officers' note forgiven
on stock purchases - - - - 13,449 - - 13,449
Net loss - - (11,770,350) - - - (11,770,350)
------------------------------------------------------------------------------------------------------
Balance as of June 30,
2001 28,911,734 $140,255,065 $4,321,856 $13,914,908 ($17,542) 1,542,526 ($4,137,138) $154,337,149
======================================================================================================
See accompanying notes.
F-4
Concord Camera Corp. and Subsidiaries
Consolidated Statements of Cash Flows
Year Ended
-----------------------------------------
June 30, July 1, July 3,
2001 2000 1999
-------- ------- -------
Cash flows from operating activities:
Net (loss) income ($ 11,770,350) $ 19,598,567 $ 7,708,906
Adjustments to reconcile net (loss) income
to net cash (used in) provided by operating activities:
Depreciation and amortization 5,737,190 4,639,724 4,233,446
Officers' notes forgiven on stock purchases 13,449 452,965 744,321
Interest income on notes receivable arising from
common stock agreements (1,754) (85,190) (142,400)
Deferred income taxes 2,504,873 (4,232,389) 159,531
Non-cash compensation expense on stock options 401,363 220,193 182,767
Write-off of uncollectible receivable 15,800,000 - -
Write-down of inventory 4,714,000 - -
Restructuring reserve 1,400,000 - -
Changes in operating assets and liabilities:
Accounts receivable (7,483,565) (15,297,718) 1,689,205
Inventories (3,877,052) (10,982,591) 838,039
Prepaid expenses and other current assets 3,245,861 (3,222,708) 833,729
Other assets (4,885,763) (3,216,104) (2,256,699)
Accounts payable (7,519,288) 9,286,087 2,010,781
Accrued expenses 248,450 7,802,864 567,185
Income taxes payable (1,014,091) 1,128,015 516,481
Other current liabilities (360,915) 383,649 (36,723)
Other long-term liabilities (593,106) 3,185,488 470,679
-------- ------------ -------
Net cash (used in) provided by operating activities (3,440,698) 9,660,852 17,519,248
---------- ----------- ----------
Cash flows from investing activities:
Purchases of property, plant and equipment (7,488,077) (7,792,029) (6,166,331)
---------- ----------- ------------
Net cash used in investing activities (7,488,077) (7,792,029) (6,166,331)
---------- ----------- -------------
Cash flows from financing activities:
Purchases of short-term investments (49,869,567) - -
Net repayments under short-term debt agreements (2,190,264) (5,898,638) (2,733,111)
Repayments under long-term debt agreements - (2,100,000) (396,460)
Proceeds from issuance of senior notes - - 14,850,000
Net principal (repayments) borrowings under capital
lease obligations (2,036,669) (2,222,477) 2,416,533
Purchases of treasury stock - (758,626) (2,925,593)
Proceeds from notes receivable arising from common
stock purchase agreements - 1,766,530 -
Net proceeds from issuance of common stock 98,109,809 1,027,921 1,022,776
---------- ------------- ----------------
Net cash provided by (used in) financing activities 44,013,309 (8,185,290) 12,234,145
---------- --------- ----------
Net increase (decrease) in cash and cash equivalents 33,084,534 (6,316,467) 23,587,062
Cash and cash equivalents at beginning of the year 24,390,294 30,706,761 7,119,699
------------ ---------- ---------
Cash and cash equivalents at end of the year $57,474,828 $ 24,390,294 $30,706,761
=========== ============ ===========
Supplemental disclosure of cash flow information (see
Note 1 for non-cash disclosure):
Cash paid for interest $2,217,000 $2,768,000 $3,048,000
========== ========== ==========
Cash paid for income taxes $1,523,000 $819,000 $15,000
========== ======== =======
See accompanying notes.
F-5
CONCORD CAMERA CORP. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
Concord Camera Corp. ("Concord") and its wholly-owned subsidiaries, Concord
Camera HK Limited ("Concord HK"), a Hong Kong corporation, Concord Camera GmbH
("Concord GmbH"), Concord Camera (Europe) Limited (formerly Concord Camera UK
Ltd.) ("Concord UK"), Goldline (Europe) Limited ("Goldline"), Concord-Keystone
Sales Corp. ("Concord Keystone"), Concord Holding Corp. ("Concord Holding"),
Concord Camera Illinois Corp. ("Concord Canada"), Concord Camera (Panama) Corp.
("Concord Panama"), Concord Camera (Hungary) ("Concord Hungary") and Concord
Camera France SARL ("Concord France") (collectively, the "Company"). All
significant intercompany balances and transactions have been eliminated.
Nature of Business
The Company is engaged in the design, development, manufacture, marketing and
worldwide distribution of image capture products and related accessories.
Substantially all of the Company's products are assembled in the People's
Republic of China ("PRC"). As a result, the Company's operations could be
adversely affected by political instability in the PRC. Consolidated net sales
to the Company's three largest customers during the fiscal year ended June 30,
2001 ("Fiscal 2001"), July 1, 2000 ("Fiscal 2000"), and July 3, 1999 ("Fiscal
1999") amounted to approximately $74,684,000 (40.7%), $102,510,000 (59.2%), and
$68,105,000 (57.5%), respectively. Specifically, the consolidated sales to the
Company's three largest customers, KB Gear Interactive, Inc. ("KB Gear"),
Walgreen Co. ("Walgreens"), and Eastman Kodak Company ("Kodak") in Fiscal 2001
amounted to approximately $26,216,000 (14.3%), $25,854,000 (14.1%) and
$22,614,000 (12.3%), respectively. During the fourth quarter of Fiscal 2001, the
Company incurred a bad debt write-off of approximately $15,800,000, which
represented the outstanding accounts receivable balance of KB Gear. The Company
is no longer designing, developing or manufacturing products for, or selling
products to, KB Gear. (See Note 2). In Fiscal 2000, consolidated sales to the
Company's three largest customers, Polaroid Corporation ("Polaroid"), Kodak and
Agfa Gevaert AG ("Agfa") amounted to approximately $43,463,000 (25.1%),
$38,787,000 (22.4%) and $20,259,000 (11.7%), respectively. In Fiscal 1999,
consolidated sales to the Company's three largest customers, Kodak, Polaroid and
Agfa, amounted to approximately $36,111,000 (30.5%), $17,718,000 (15.0%) and
$14,276,000 (12.1%), respectively. The Company believes that the loss of any of
these customers would have a material adverse effect on the Company as a whole.
No other customer accounted for 10% or more of consolidated net sales during
Fiscal 2001, Fiscal 2000 or Fiscal 1999.
Beginning in Fiscal 1999, the Company changed its fiscal year end to end on the
Saturday closest to June 30. Prior to Fiscal 1999, the Company's fiscal year was
the twelve-month period ending June 30. Accordingly, for Fiscal 2001, Fiscal
2000 and Fiscal 1999, the year-end was on June 30, 2001, July 1, 2000, and July
3, 1999, respectively.
F-6
Cash and Cash Equivalents
The Company considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents.
Short-term Investments
The Company accounts for marketable securities in accordance with the provisions
of Financial Accounting Standards No. 115, Accounting for Certain Investments in
Debt and Equity Securities (SFAS 115), which requires that all applicable
investments be classified as trading securities, available-for-sale securities
or held-to-maturities securities. The Company did not have any investments
classified as trading securities or available-for-sale securities. The Company's
investment in debt securities, all of which mature in six months or less, are
held to maturity and valued at amortized cost, which approximates fair market
value. The aggregate fair market value at June 30, 2001 approximates the
carrying value due to the short maturity, and was approximately $49,870,000 and
consists entirely of U.S. government agency backed securities. The average yield
of these securities at June 30, 2001 was 3.83%.
Inventories
Inventories, which consist mostly of raw materials, are stated at the lower of
cost or market value and are determined on a first-in, first-out basis.
Components of inventory cost include materials, labor, and manufacturing
overhead. Inventories are comprised of the following:
June 30, July 1,
2001 2000
-------- ----
Raw material and components $23,987,935 $22,116,287
Finished goods 6,778,263 9,486,860
----------- -----------
$30,766,198 $31,603,147
=========== ===========
Property, Plant and Equipment
Property, plant and equipment are carried at cost less accumulated depreciation
and amortization. Depreciation is computed by use of the straight-line method
over the estimated useful lives of the respective assets. Small tools and
accessories used in production in the PRC are charged to operations when
purchased. Leasehold costs and improvements are amortized on a straight-line
basis over the term of the lease or their estimated useful lives, whichever is
shorter. Depreciation expense for Fiscal 2001, Fiscal 2000 and Fiscal 1999 was
approximately $4,561,000, $3,643,000 and $3,258,000, respectively. Amortization
of assets recorded under capital leases is included in depreciation and
amortization expense.
Useful Lives
Asset Class (in years)
----------- ------------
Buildings, including buildings under capital lease 5-50
F-7
Equipment, including equipment under capital lease 4-10
Office furniture and equipment 3-8
Automobiles 4-7
Goodwill
Under current accounting guidance, cost in excess of net assets acquired
(goodwill) is being amortized on a straight-line basis over periods ranging from
fifteen to twenty years. The carrying value of goodwill is reviewed by the
Company's management if the facts and circumstances suggest that it may be
impaired. If this review indicates that these costs will not be recoverable, as
determined based on the expected undiscounted cash flows of the entity to which
the goodwill is associated over the remaining amortization period, the carrying
value of goodwill would be reduced by the estimated shortfall of cash flows.
Accumulated amortization at June 30, 2001 and July 1, 2000 was approximately
$2,680,736 and $2,389,705, respectively.
Impairment of Long-Lived Assets
In accordance with the Financial Accounting Standards Board ("FASB"), Statement
of Financial Accounting Standards ("SFAS"), No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of, the
Company records impairment losses when indications of impairment are present and
the undiscounted cash flows estimated to be generated by those assets are less
than the assets' carrying amounts. No impairment indicators were noted for
Fiscal 2001, Fiscal 2000 or Fiscal 1999.
Other Assets
Other assets include deferred finance costs, patents, trademarks and licensing
costs, deferred compensation, net deferred tax assets, and other non-current
assets. Trademarks, patents, licensing fees and deferred finance costs are
amortized on a straight-line basis over their estimated useful lives as follows:
Patents, trademarks and license fees (5-20 years), and deferred finance costs (7
years). Gross amounts at June 30, 2001 and July 1, 2000 for patents, trademarks
and licenses were $8,547,072 and $4,449,670, respectively. The associated
accumulated amortization at June 30, 2001 and July 1, 2000 were $2,981,449 and
$2,424,937, respectively. The increase in patents, trademarks and licenses was
primarily related to the Company entering into agreements regarding the
licensing of certain patents and trademarks and recording them at the present
value of the future payments due under such agreements. A corresponding
liability was also recorded and included in other long-term liabilities in the
accompanying balance sheet at June 30, 2001. The increases to other assets and
other long-term liabilities related to such agreements were non-cash items and
accordingly not reflected in the accompanying statement of cash flows for Fiscal
2001. Other assets are comprised of the following:
June 30, July 1,
2001 2000
---- ----
Deferred finance costs, net $ 589,597 $ 695,223
Patents, trademarks and licenses, net 5,565,623 2,024,733
Deferred compensation 5,944,929 5,580,270
Deferred tax asset, net 5,719,369 1,583,971
Other 236,195 809,245
------------- --------------
$ 18,055,713 $ 10,693,442
============= ==============
F-8
Revenue Recognition
Revenues are recognized when title and risk of loss are transferred to
customers, which is generally when the product is shipped to a customer.
Advertising
Advertising costs are expensed as incurred and included in selling expenses.
Advertising allowances and other discounts totaled approximately $888,000,
$688,000, and $464,000 for Fiscal 2001, Fiscal 2000 and Fiscal 1999,
respectively.
Foreign Currency Transactions
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. Each of the Company's foreign
subsidiaries purchases its inventories in U.S. Dollars and has the majority of
its sales in U.S. dollars. Accordingly, the U.S. dollar is the functional
currency. Certain sales to customers and purchases of certain components to
manufacture cameras are made in local currency including Japanese Yen, thereby
creating an exposure to fluctuations in foreign currency exchange rates. The
translation from the applicable currencies to U.S. dollars is performed for
balance sheet accounts using current exchange rates in effect at the balance
sheet date and for revenue and expense accounts using a weighted average
exchange rate during the period. Gains or losses resulting from foreign currency
transactions and remeasurement are included in "Other (income) expense, net" in
the accompanying consolidated statements of income. For Fiscal 2001, Fiscal 2000
and Fiscal 1999 included in other income, net in the accompanying consolidated
statements of operations are approximately ($348,000), $143,000, and $432,000,
respectively, of net foreign currency (gains) losses.
Hedging Activities
During Fiscal 2001, Fiscal 2000 and Fiscal 1999 the Company had no forward
exchange contracts outstanding and did not participate in any other type of
hedging activities.
Income Taxes
The provision (benefit) for taxes is based on the consolidated United States
entities' and individual foreign companies' estimated tax rates for the
applicable year. Deferred taxes are determined utilizing the asset and liability
method based on the difference between financial reporting and tax basis of
assets and liabilities and are measured using the enacted tax rates and laws
that will be in effect when the differences are expected to reverse. Deferred
income tax provisions and benefits are based on the changes in the net deferred
tax asset or liability from period to period. Valuation allowances are
established when necessary to reduce deferred tax assets to the amount expected
to be realized.
Earnings (Loss) Per Share
Basic and diluted earnings (loss) per share are calculated in accordance with
SFAS No. 128, Earnings per Share. All applicable earnings (loss) per share
amounts have been presented to conform to the SFAS 128 requirements. In Fiscal
2001, dilutive securities comprised of options to purchase 2,439,448 shares of
Common Stock were not included in the calculation of diluted loss per share
because their impact was antidilutive. On April 14, 2000, the Company effected a
two-for-one stock split of its Common Stock through a
F-9
stock dividend to shareholders of record on March 27, 2000. Accordingly, share
and per-share data for all periods presented in the accompanying consolidated
financial statements have been restated to reflect the stock split.
Stock Based Compensation
As permitted by SFAS No. 123, Accounting for Stock-Based Compensation, the
Company has elected to follow Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees ("APB 25") and related interpretations
in accounting for its employee stock-based transactions and has complied with
the disclosure requirement of SFAS 123. (See note 9.) Under APB 25, compensation
expense is calculated at the time of option grant based upon the difference
between the exercise price of the option and the fair market value of the
Company's common stock at the date of grant recognized over the vesting period.
Reclassifications
Certain amounts in prior years have been reclassified to conform to the current
year presentation.
Use of Estimates
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Impact of Recently Issued Accounting Standards
Effective July 2, 2001 the Company adopted SFAS No. 133, Accounting for
Derivative Instruments and Hedging Activities, as amended. SFAS No. 133, as
amended, establishes accounting and reporting standards for derivative
instruments and hedging activities and will require the Company to recognize all
derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. Because the Company
currently holds no derivative instruments and does not engage in hedging
activities, the adoption of SFAS No. 133 will not have a significant effect on
the financial position, results of operations or cash flows of the Company.
The Securities and Exchange Commission issued Staff Accounting Bulletin 101
("SAB 101"), Revenue Recognition in Financial Statements, which became effective
in the fourth quarter of Fiscal 2001. Management determined that SAB 101 had no
material impact on the Company's results from operations.
Emerging Issues Task Force ("EITF") Issue No. 00-10, Accounting for Shipping and
Handling Fees and Costs, requires that amounts billed to a customer related to
shipping and handling be classified as revenue, and allows companies to adopt a
policy of including shipping and handling costs in cost of sales or another
income statement line item. The Company adopted EITF Issue No. 00-10 in Fiscal
2001, and consistent with prior practice, reports the costs of shipping and
handling billed to customers as part of sales.
EITF Issue No. 00-14, Accounting for Certain Sales Incentives, addresses the
recognition, measurement and income statement classification for certain sales
incentives offered voluntarily by a vendor, without
F-10
charge to a customer. Concord adopted EITF Issue No. 00-14 in Fiscal 2001. The
impact of adoption did not have a significant impact on the Company's financial
position or its results of operations.
EITF Issue No. 00-25, Vendor Income Statement Characterization of Consideration
from a Vendor to a Retailer, addresses the income statement classification of
consideration between a vendor and a retailer. Although management is still
assessing the impact this EITF will have on its consolidated financial
statements, it believes that the adoption of EITF No. 00-25 may result in lower
gross margins and lower selling expenses as certain variable selling expenses
which have been historically classified as operating expenses will be
reclassified as a reduction of revenues. The Company expects to adopt EITF 00-25
in Fiscal 2002.
On June 29, 2001, the FASB issued SFAS No. 141, Business Combinations, and SFAS
No. 142, Goodwill and Other Intangible Assets. SFAS No. 141 applies to all
business combinations with a closing date after June 30, 2001, and eliminates
the pooling-of-interests method of accounting and further clarifies the criteria
for recognition of intangible assets separately from goodwill. SFAS No. 142
eliminates the amortization of goodwill and indefinite-lived intangible assets
and initiates an annual review for impairment. Identifiable intangible assets
with a determinable useful live will continue to be amortized. The amortization
provisions apply to goodwill and other intangible assets acquired after June 30,
2001. Goodwill and other intangible assets acquired prior to June 30, 2001 will
be effected upon adoption. The Company will adopt SFAS No. 142 effective July 1,
2001, which will require the Company to cease amortization of its remaining net
goodwill balance and to perform an impairment test of its existing goodwill
based on a fair value concept. Although management is still reviewing the
provisions of these Statements, it is management's preliminary assessment that
goodwill impairment will not result upon adoption.
F-11
NOTE 2 - RESTRUCTURING INITIATIVES AND OTHER CHARGES
The Company announced a restructuring and cost containment initiative
("Restructuring Initiative") in the fourth quarter of Fiscal 2001 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 PRC) by
approximately 71 employees primarily employed in manufacturing, engineering,
sales and marketing and administration functions. The Company has also reduced
its manufacturing workforce in the PRC by approximately 2,000 workers. Costs for
the Restructuring Initiative were approximately $1,400,000, which was comprised
of approximately $400,000 related to the shut down of facilities and
approximately $1,000,000 related to personnel termination costs. Included in
accrued expenses in the accompanying consolidated balance sheet at June 30, 2001
was approximately $1,400,000 related to the Restructuring Initiative. Included
in the accompanying consolidated statement of operations for Fiscal 2001 under
costs of products sold and general and administrative expenses were
approximately $500,000 and $900,000, respectively related to the Restructuring
Initiative.
During the fourth quarter of Fiscal 2001, the Company recognized a bad debt
write-off of approximately $15,800,000, and an inventory write-down of
approximately $2,714,000. Both of these charges related to KB Gear and were
included in general and administrative expense and cost of sales, respectively,
in the accompanying statements of operations for Fiscal 2001. The Company
recorded an additional $2,000,000 inventory provision in the fourth quarter of
Fiscal 2001 related to inventory being written down to the lower of cost or
market value. These costs were included in the cost of products sold in the
accompanying consolidated statement of operations for Fiscal 2001.
NOTE 3 - TERMINATED ACQUISITON COSTS
Terminated acquisition costs of approximately $800,000 for Fiscal 2001 were
related to a proposed acquisition that was not consummated. Negotiations
regarding this acquisition were terminated in September, 2000.
NOTE 4 - ACCOUNTS RECEIVABLE:
Accounts receivable consist of the following:
June 30, July 1,
2001 2000
-------- ----
Trade accounts receivable $25,956,441 $33,994,931
Less: Allowances for doubtful
accounts, discounts and allowances (702,827) (424,884)
----------- ------------
$25,253,614 $33,570,047
=========== ============
F-12
NOTE 5 - PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment consist of the following:
June 30, July 1,
2001 2000
---- ----
Buildings, including buildings under capital lease $ 7,318,539 $ 7,439,520
Equipment, including equipment under capital lease 27,685,170 24,447,583
Office furniture and equipment 10,326,834 8,537,289
Automobiles 458,370 373,916
Leasehold improvements 4,864,431 4,038,720
--------- --------
50,653,344 44,837,028
Less: Accumulated depreciation and amortization (26,256,937) (22,027,007)
---------- ----------
$24,396,407 $22,810,021
========== ==========
NOTE 6 -- SHORT-TERM DEBT:
Short-term debt is comprised of the following:
June 30, July 1,
2001 2000
-------- --------
Hong Kong Credit Facilities $ - $1,495,212
United Kingdom Credit Facility - 695,051
United States Credit Facilities - -
----------------- ----------
$ - $2,190,263
================ ==========
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. Since 1983 the Hong Kong dollar has been
pegged to the US dollar. The revolving credit facilities are comprised of 1) an
approximate $11,000,000 Import Facility, 2) an approximate $2,600,000 Packing
Credit and Export Facility, 3) an approximate $1,900,000 Foreign Exchange
Facility and 4) an $18,000,000 Accounts Receivable Financing Facility. The
$18,000,000 Accounts Receivable Financing Facility is secured by certain
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 formulas based on Eligible Accounts Receivable and all the
credit facilities are subject to certain financial ratios and covenants.
Additionally, the Hong Kong Credit Facilities bear interest at 0.5% above the
Hong Kong prime-lending rate. At June 30, 2001 no amounts were outstanding under
these facilities.
F-13
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 and bears interest at 1.5% above
the UK prime lending rate. There were no amounts outstanding under the facility
as of June 30, 2001.
United States 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. The US
Facilities bear interest at 1.75% above London Interbank Offer Rate ("LIBOR").
No amounts were outstanding under the US Facilities at June 30, 2001.
There were no short-term borrowings outstanding at June 30, 2001. The weighted
average interest rate on the Company's short-term borrowings was approximately
10.6% at July 1, 2000.
NOTE 7 -- SENIOR NOTES:
On July 30, 1998, the Company consummated a private placement of $15,000,000 of
unsecured senior notes ("Senior Notes"). The notes bear interest at 11%, and the
maturity date is July 15, 2005. Interest payments are due quarterly.
Upon a Change of Control as defined in the Senior Notes, the Company would be
required to offer to repurchase the notes at a purchase price equal to 101% of
the aggregate principal amount plus accrued and unpaid interest thereon.
The Senior Notes contain certain financial and operational covenants and
customary events of default, including, among others, payment defaults and
default in the performance of other covenants, breach of representations or
warranties, cross-default to other indebtedness, certain bankruptcy or ERISA
defaults, the entry of certain judgments against the Company or any subsidiary,
and any security interest or guarantees that cease to be in effect. 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 June 30, 2001, the early
redemption fee was 5% of the outstanding principal. The fee decreases to 3%, 1%
and 0% on July 16, 2001, July 16, 2002 and July 16, 2003, respectively. As of
June 30, 2001 and July 1, 2000 the outstanding balance of the Senior Notes was
$14,912,501 and $14,891,071, respectively.
NOTE 8 - ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS:
The carrying amounts of cash and cash equivalents, short-term investments,
accounts receivable, accounts payable, accrued expenses and short-term debt
approximate fair value because of their short duration to maturity. The carrying
amount of the Company's Senior Notes approximate fair value at June 30, 2001 and
at July 1, 2000. The fair value is estimated based on the quoted market prices
for the same issues or on current
F-14
rates offered to the Company for debt with the same remaining maturities.
Because judgment is required in interpreting market data to develop estimates of
fair value, the estimates are not necessarily indicative of the amounts that
could be realized or would be paid in a current market exchange. The effect of
using different market assumptions or estimation methodologies may be material
to the estimated fair value amounts.
NOTE 9 - SHAREHOLDERS' EQUITY:
On April 14, 2000, the Company effected a two-for-one stock split of its Common
Stock through a stock dividend to shareholders of record on March 27, 2000.
Accordingly, share and per-share data for all periods presented in the
accompanying consolidated financial statements have been restated to reflect the
stock split.
In the fourth quarter of Fiscal 2000, the Board of Directors of the Company
authorized the Company to issue up to 1,000,000 shares of blank check preferred
stock. Such shares of preferred stock will have such rights and preferences as
are determined by the Board of Directors. There were no preferred shares issued
or outstanding as of June 30, 2001.
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 $96,881,000, after offering costs and underwriting fees of
approximately $6,274,000. These proceeds have been used, or have been intended,
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 Company's Incentive Plan permits the Compensation Committee of the Company's
Board of Directors to grant a variety of common stock awards and provides for a
formula plan for annual grants to non-employee directors. The maximum number of
shares of common stock available for awards under the Incentive Plan is
6,000,000.
Stock option activity is as follows:
Incentive Plan Individual Plans
-------------- ----------------
Number of Shares Option price per share Number of Shares Option price per share
---------------- ---------------------- ---------------- ----------------------
Outstanding at June 30, 1998 2,496,976 $0.88 - $4.50 1,671,500 $0.92 - $2.94
================ =================== ============== ===============
Canceled (1,000) $1.50 (40,500) $1.00 - $1.50
Granted 157,000 $1.63 - $3.07 72,000 $1.99 - $3.13
Exercised (302,680) $0.88 - $2.00 (518,668) $1.00 - $1.50
Outstanding at June 30, 1998 2,350,296 $0.88 - $3.07 1,184,332 $0.92 - $3.13
================ =================== ============== ===============
Canceled (29,326) $1.00 - $4.50 (64,000) $2.50 - $13.03
Granted 1,306,874 $2.75 - $22.19 287,500 $4.31 - $15.75
Exercised (296,796) $0.88 - $4.06 (227,400) $0.92 - $3.13
Outstanding at June 30, 1998 3,331,048 $0.88 - $22.19 1,180,432 $1.00 - $15.75
================ =================== ============== ===============
Canceled (200,000) $22.19 (60,834) $4.81 - $11.50
Granted 269,500 $6.59 - $23.25 317,500 $6.75 - $25.44
Exercised (202,000) $0.91 - $2.75 (277,600) $1.00 - $6.44
Outstanding at June 30, 1998 3,198,548 $0.88 - $23.25 1,159,498 $1.00 - $25.44
================ =================== ============== ===============
F-15
At June 30, 2001, 593,826 shares were available for future grants under the
Incentive Plan, and there were 2,333,709 options exercisable with exercise
prices ranging from $0.88 to $23.25. The weighted average exercise price was
$8.25 and the weighted average remaining contractual life was 6 years. The
Company, from time to time, will grant stock options to certain individuals as
part of an "individual employee stock option plan" as an inducement to
employment. These grants are not considered part of the Incentive Plan. As of
June 30, 2001 there were 1,159,498 stock options outstanding under "individual
employee stock option plans" with exercise prices ranging from $0.92 to $25.44.
The weighted average exercise price was $7.32 and the weighted average remaining
contractual life was 6 years. There were a total of 752,996 stock options
exercisable at June 30, 2001 with exercise prices ranging from $0.92 to $22.19.
As of June 30, 2001, a total of 4,358,046 shares of Common Stock were reserved
for issuance under both the Incentive Plan and "individual employee stock option
plans."
The Company accounts for its stock option plans using the intrinsic value method
prescribed by Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees" and related Interpretations, under which no compensation
cost for stock options is recognized for stock option awards granted at or above
fair market value. On October 22, 1998, the Board of Directors approved the
extension of the expiration date of certain option grants to certain
non-employee directors to January 31, 2004. Compensation expense recognized by
the Company related to this modification amounted to $182,767 for the Fiscal
1999. Additionally, as of July 18, 2001, the Board of Directors approved
extending the expiration dates of the outstanding options held by certain former
directors.
Pro forma information regarding net income and earnings per share is required by
SFAS No. 123, "Accounting for Stock Issued to Employees", and has been
determined as if the Company had accounted for its employee stock options under
the fair value method of that Statement. The fair value for these options was
estimated at the date of grant using a Black-Scholes option-pricing model with
the following weighted average assumptions for the three years ended June 30,
2001:
Expected dividend yield 0% for all three periods. Expected life of the
options within a range of 3 to 10 years. Risk free interest rates
within a range of 3.5%, 4.6% to 6.2% and a volatility factor of the
Company's common stock of 1.653, .749, and .716 for Fiscal 2001, 2000
and 1999, respectively.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options that have no vesting
restrictions and are fully transferable. In addition, option valuation
models require the input of highly subjective assumptions including the
expected stock price volatility. Because the Company's employee stock
options have characteristics significantly different from those of
traded options, and because changes in the subjective input assumptions
can materially affect the fair value estimate, in management's opinion,
the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options. The Company
has determined the
F-16
weighted average fair value per share of options granted during Fiscal
2001, 2000, and 1999 to be $6.51, $7.67, and $1.65, respectively.
For the purposes of pro forma disclosures, the estimated fair value of the
equity awards is amortized to expense over the options vesting period. The
Company's pro forma information is as follows:
Fiscal Year
----------------------------------------
2001 2000 1999
---- ---- ----
Pro forma net (loss) income $(16,804,811) $18,378,198 $7,328,297
============ =========== ==========
Pro forma basic net (loss) income per share $ (0.65) $ 0.84 $ 0.33
============ =========== =========
Pro forma diluted net (loss) income per share $ (0.65) $ 0.76 $ 0.32
============ =========== =========
On August 23, 1995, the Compensation Committee of the Board approved stock
purchase awards under the Management Equity Provisions of the Company's
Incentive Plan pursuant to which 1,000,000 shares of Common Stock were made
available for purchase by senior management of the Company at a price per share
equal to $2.6875 per share (the closing price of the Common Stock on August 23,
1995, as adjusted for the two-for-one stock split effective on April 14, 2000)
pursuant to binding commitments to be made by such persons by August 31, 1995.
The Company received commitments for the purchase of 888,000 shares (the
"Purchased Shares"). Each purchaser was also granted the right to receive a
contingent restricted stock award covering a number of shares equal to the
number of shares he had purchased based upon attainment of increases in
shareholder value in accordance with the Incentive Plan. If issued, such
contingent restricted shares were to vest over a three-year period and were
subject to forfeiture prior to vesting under certain conditions.
In November 1995, members of the Company's senior management entered into
purchase agreements (the "Purchase Agreements") for the Purchased Shares.
Pursuant to the Purchase Agreements, each purchaser executed a full recourse
note for the purchase price of such shares (each a "Note"; collectively, the
"Notes") and pledged the Purchased Shares as security for the payment of the
Note. The Notes bear interest at an annual rate of 6%. Concurrently with the
execution of their respective Purchase Agreements and Notes, each purchaser
entered into a Voting Agreement pursuant to which each purchaser agreed to vote
all of his Purchased Shares and contingent restricted stock in accordance with
the determination of the holders of a majority of all of the Purchased Shares
and contingent restricted stock held by the purchasers. To effect the foregoing,
each of the purchasers delivered an irrevocable proxy to Ira B. Lampert and
agreed that prior to any transfer of Purchased Shares and contingent restricted
stock, such purchaser would cause the transferee (i) to agree in writing with
Mr. Lampert to be bound by the provisions of the Voting Agreement with respect
to such shares and (ii) to execute and deliver to Mr. Lampert an irrevocable
proxy.
Pursuant to Amendments to each of the Purchase Agreements dated February 28,
1997 (the "Amendments"), the Company was relieved of its obligation to issue any
contingent restricted stock. Instead, each participating member of the Company's
senior management received, as of December 22, 1996, options to purchase that
number of shares of Common Stock (the "Option Shares") equal to the number of
Purchased Shares purchased by such person, at an exercise price of $0.9063 per
share. The options vested as to 20% of the Option Shares covered thereby as of
December 22, 1996, and the balance of the shares covered thereby began vesting
December 31, 1996 in equal monthly
F-17
installments over a four-year period during the term of employment or
consultancy. The unvested portion became vested on August 19, 1998 when the
average closing price of the Common Stock was at least $5.00 (pre-split
adjustment) for 90 consecutive trading days. Concurrently with the Amendments,
the Voting Agreement and the irrevocable proxies were amended and restated to
include the Option Shares and delete any mention of the contingent restricted
stock.
In April 1999, the Board approved a conditional release program whereby the
Company agreed to forgive a portion of the indebtedness represented by each Note
and concurrently release a proportionate number of Purchased Shares held by the
Company as security for payment of the Notes. The debt forgiveness and share
release program (the "Release Program") began on May 1, 1999 and will continue
on January 1 each year through January 1, 2003. The total principal sum subject
to forgiveness under the Release Program is $2,386,500, together with interest
owed under the Notes. The debt forgiveness is conditioned upon the person's
continued employment with the Company. If a person ceases to be an employee or
consultant of the Company prior to full forgiveness of the debt, the principal
amount of the Note will immediately become due and payable, including any
amounts scheduled to be forgiven at a future date.
As contemplated by the Management Equity Provisions, subsequent to 1995 certain
Purchased Shares and the related options were transferred to other eligible
members of the Company's senior management upon their execution of the required
agreements and Notes. Notes previously delivered to secure payment for such
shares were canceled upon delivery of new Notes by current members. The
Purchased Shares and options awarded pursuant to the Management Equity
Provisions are presently held by Ira B. Lampert, Brian F. King, Keith L.
Lampert, Harlan I. Press and Arthur Zawodny.
In January 2000, the Board further provided that a participant in the Management
Equity Provisions would have the right to prepay all or any portion of the
indebtedness represented by a Note issued in connection with the purchase of
shares, and that the amount so prepaid would be repaid to the participant as
deferred compensation at such time as the amount would otherwise have been
forgiven in accordance with the Release Program.
The following are the scheduled release dates, and the total amounts that are
(or were, as the case may be) to be forgiven* on such dates, under the Release
Program.
Total Principal Total Purchased
Indebtedness Forgiven Shares Released
Releasee Release Dates or to be Forgiven or to be Released
-------- --------------------------------- --------------------- ------------------
Brian F. King................ May 1, 1999, and January 1st of $430,000* 160,000
2000, 2001, 2002 and 2003
Ira B. Lampert............... May 1, 1999, and January 1st of $1,612,500* 600,000
2000, 2001, 2002 and 2003
Keith L. Lampert............. May 1, 1999, and January 1st of $295,625* 110,000
2000, 2001, 2002 and 2003
Harlan I. Press.............. January 6, 2000, and January 1st of $10,750 4,000
2001, 2002 and 2003
Arthur Zawodny............... May 1, 1999, and January 1st of $37,625 14,000
2000, 2001, 2002 and 2003
F-18
-----------
* After the January 1, 2000 release date, the balance of these amounts were
repaid in full. Ira B. Lampert, Brian King and Keith Lampert have each prepaid
in full the balance of the debts represented by their Notes and, assuming their
continued employment with the Company, will be entitled to receive deferred
compensation in lieu of the amounts scheduled to be forgiven under the Release
Program.
NOTE 10 -- INCOME TAXES:
(Loss) income before income taxes in the accompanying consolidated statements of
operations consists of the following:
Year Ended
----------------------------------------
June 30, July1, July 3,
2001 2000 1999
---- ---- ----
United States ($126,216) $27,000 ($1,470,000)
Foreign (12,574,983) 16,820,178 10,072,093
---------- ---------- ----------
($12,701,199) $16,847,178 $8,602,093
============ =========== ==========
The (benefit) provision for income taxes is comprised of the following:
Year Ended
----------------------------------------
June 30, July 1, July 3,
2001 2000 1999
---- ---- ----
Current:
United States $591,230 $298,000 $(52,706)
Foreign - 1,183,000 786,362
Deferred:
United States (525,265) (4,522,579) -
Foreign (996,814) 290,190 159,531
------- ------- -------
$ (930,849) $(2,751,389) $ 893,187
========== =========== =========
Deferred income taxes reflect the net tax effects of (a) temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes and (b) operating loss
carryforwards. The tax effects of significant items comprising the Company's
deferred tax assets and liabilities as of June 30, 2001 are as follows:
F-19
United States
Deferred Tax Liabilities: Federal State Foreign Total
------------------------- ---------- --------- ---------- ----------
Difference between book and tax
basis of property
$ -- $ -- $(1,202,322) $(1,202,322)
Other deferred liabilities -- -- ($4,754) (4,754)
---------- --------- ----------- -----------
Total deferred liabilities -- -- (1,207,076) (1,207,076)
Deferred Tax Assets:
-------------------
Operating loss carryforwards 3,354,524 314,781 1,065,000 4,734,305
Reserves not currently deductible 356,592 22,879 -- 379,471
Depreciation 122,728 10,348 -- 133,076
Compensation accruals 1,062,677 85,146 -- 1,147,823
Difference between book and tax
basis of property 266,090 26,056 -- 292,146
Tax credits 128,799 -- -- 128,799
Deferred intercompany transaction 428,533 8,954 -- 437,487
Contributions carryover 882 4,196 -- 5,078
Other deferred tax assets 123,329 22,678 -- 146,007
---------- --------- ----------- -----------
Total deferred tax assets 5,844,154 495,038 1,065,000 7,404,192
---------- --------- ----------- -----------
Net deferred tax asset $5,844,154 $ 495,038 $ (142,076) $ 6,197,116
========== ========= =========== ===========
The net deferred tax assets included in prepaid expenses and other current
assets in the accompanying consolidated balance sheet at June 30, 2001 was
$477,747 and the net deferred tax assets included in other assets in the
accompanying consolidated balance sheet at June 30, 2001 was $5,719,369.
The tax effects of significant items comprising the Company's deferred tax
assets and liabilities as of July 1, 2000 are as follows:
United States
Federal State Foreign Total
------------- -------------- ------------ ------------
Deferred Tax Liabilities:
-------------------------
Difference between book and tax
basis of property $ -- $ -- ( $1,100,782) ($1,100,782)
Other deferred liabilities -- -- (38,108) (38,108)
------------- -------------- ------------ ------------
Total deferred liabilities -- -- (1,138,890) (1,138,890)
F-20
Deferred Tax Assets:
--------------------
Operating loss carryforwards 2,199,351 29,066 -- 2,228,417
Reserves not currently deductible 202,916 21,664 -- 224,580
Depreciation 115,191 6,221 -- 121,412
Compensation accruals 1,150,900 122,876 -- 1,273,776
Difference between book and tax
basis of property 215,141 22,969 -- 238,110
Tax credits 113,829 -- -- 113,829
Deferred intercompany transaction 251,600 -- -- 251,600
Other deferred tax assets 55,932 9,924 -- 65,856
---------- --------- ------------ ----------
Total deferred tax assets 4,304,860 212,720 -- 4,517,580
---------- -------- ------------ ---------
Net deferred tax asset $4,304,860 $ 212,720 ($ 1,138,890) $3,378,690
=========== ========= ============= ==========
The net deferred tax asset included in prepaid expenses and other current assets
in the accompanying consolidated balance sheet at July 1, 2000 was $1,794,719,
and the net deferred tax asset included in other assets in the accompanying
consolidated balance sheet at July 1, 2000 was $1,583,971.
Since July 1992, Concord HK's annual tax rate has been 8.75%. The Company
currently does not pay taxes or import/export duties in the PRC, but there can
be no assurance that the Company will not be required to pay such taxes or
duties in the future. Hong Kong is taxed separately from the PRC.
The Company has never paid any income or turnover tax to the PRC on account of
its business activities in the PRC. Existing PRC statutes can be construed as
providing for a minimum of 10% to 15% income tax and a 3% turnover tax on the
Company's business activities; however, the PRC has never attempted to enforce
those statutes. The Company has been advised that the PRC's State Tax Bureau is
reviewing the applicability of those statutes to processing activities of the
type engaged in by the Company, but it has not yet announced any final decisions
as to the taxability of those activities. After consultation with its tax
advisors, the Company does not believe that any tax exposure it may have on
account of its operations in the PRC will be material to its financial
statements.
The Company does not provide for U.S. federal income taxes on undistributed
earnings of its foreign subsidiaries as it intends to permanently reinvest such
earnings. Undistributed earnings of its foreign subsidiaries approximated
$45,233,766 as of June 30, 2001. It is not practicable to estimate the amount of
tax that might be payable on the eventual remittance of such earnings. Upon
eventual remittance, no withholding taxes will be payable under current law. As
of June 30, 2001, Concord had net operating loss carryforwards for U.S. tax
purposes of approximately $13,877,000, of which approximately $3,982,000 was
attributable to deductions associated with stock option exercises during Fiscal
2001. The net operating loss carryforwards expire as follows: $3,936,000 in
2008, $2,716,000 in 2009, $4,095,000 in 2010, and the balance thereafter. Losses
for state tax purposes begin to expire in 2002. Additionally, the Company has
approximately $12,000,000 of operating loss carryforwards related to its foreign
operations which have no expiration dates.
Historically, the Company had maintained full valuation allowances against its
deferred tax assets. As of July 3, 1999, there was a $6,024,148 valuation
allowance recorded against its deferred tax assets which were primarily related
to U.S. net operating loss carryforwards. In assessing the realizability of its
deferred tax assets, management evaluated whether it is more likely than not
that some portion, or all of its deferred tax
F-21
assets, will be realized. The realization of its deferred tax assets relates
directly to the Company's tax planning strategies and ability to generate
taxable income for U.S. federal and state tax purposes. The valuation allowance
is then adjusted accordingly. As of July 1, 2000, based on all the available
evidence, management determined that it is more likely than not that its
deferred tax assets will be fully realized. Accordingly, the valuation allowance
was reversed in full and $4,517,580 was recognized as a deferred tax asset at
July 1, 2000.
As of June 30, 2001, management evaluated Concord's deferred tax asset. As part
of assessing the realizability of its deferred tax assets, management evaluated
whether it is more likely than not that some portion, or all of its deferred tax
assets, will be realized. The realization of its deferred tax assets relates
directly to the Company's tax planning strategies and the ability to generate
taxable income for U.S. federal and state tax purposes. The valuation allowance
is then adjusted accordingly. As of June 30, 2001, based on all the available
evidence, management determined that it is more likely than not that its
deferred tax assets will be fully realized. Accordingly, there was no valuation
allowance recorded against its deferred tax asset at June 30, 2001. For Fiscal
2001, Fiscal 2000 and Fiscal 1999, the Company's effective tax rate was (5.1%),
(16.3%), and 10.4%. The Company's future effective tax rate will depend on the
mix between foreign and domestic taxable income and losses, and the statutory
rates of the related tax jurisdictions.
A reconciliation of income tax expense computed at the statutory U.S. federal
rate to the actual provision (benefit) for income taxes is as follows:
Year Ended
-------------------------------------------
June 30, July 1, July 3,
2001 2000 1999
---- ---- ----
Computed tax (benefits) at statutory U.S. federal
tax rates ($4,445,419) $ 5,728,040 $ 2,614,886
Earnings of foreign subsidiaries subject to a different
tax rate 3,461,949 (2,994,480) (1,834,476)
Reversal of valuation allowance - (6,024,148) -
U.S. federal minimum tax - 95,000 -
State income tax, net of federal benefit 75,762 203,000 30,000
Other (23,141) 241,199 82,777
--------- ---------- -----------
(Benefit) Provision ($930,849) ($2,751,389) $ 893,187
========= =========== ===========
NOTE 11 -- PRODUCT DEVELOPMENT:
The Company's products are developed, designed and engineered principally by its
own engineers in the Company's three product development and design centers
located in the U.S., Hong Kong and the PRC. The Company expended approximately
$6,413,000, $4,921,000, and $4,815,000 during Fiscal 2001, Fiscal 2000, and
Fiscal 1999, respectively, for product design and development associated with
digital image capture devices, 35mm, APS, and instant reloadable and single use
cameras.
F-22
and Fiscal 1999, respectively, for product design and development associated
with digital image capture devices, 35mm and Advanced Photo System reloadable
single use and instant cameras. These costs are included in the accompanying
consolidated statements of operations under the caption, costs of products sold.
NOTE 12 -- COMMITMENTS AND CONTINGENCIES:
Offices and Warehouses
United States
The Company's principal offices, including the U.S. design center, are located
in an approximate 15,000 square foot facility at 4000 Hollywood Blvd.,
Hollywood, Florida. The Company's domestic warehouse is located in a 13,700
square foot facility in Fort Lauderdale, Florida. The Company's leases for these
facilities provide for rent of approximately $21,500 and $6,900 per month,
respectively, with annual increases of 4% and 3%, respectively, and expire in
September 2010, and January 2009, respectively.
Hong Kong
The Company holds one floor under a lease expiring in 2047 and leases four
floors constituting approximately 33,000 square feet of warehouse and business
space at Concord Technology Centre, Texaco Road, Tsuen Wan, New Territories,
Hong Kong at a cost of approximately $22,300 per month including rent and
maintenance.
PRC Operations
Cameras and components are manufactured and assembled at the Company-owned
manufacturing facilities located in the Longgong District of Shenzhen, PRC (the
"Company Facility"). The Company leases three employee dormitories and a canteen
(the "Dormitories") at a cost of approximately $21,800 per month. The aggregate
square footage of the Company Facility and the Dormitories is in excess of
600,000 square feet.
In Fiscal 2000, the Company completed an expansion to increase the aggregate
size of the PRC manufacturing and related dormitory facilities. The Company also
opened a new production facility dedicated to digital image capture device
manufacturing. In connection with these construction activities in the PRC, the
Company incurred costs of approximately $4,000,000. Such costs are being
amortized over the expected useful life of the expanded facilities. The current
processing agreement with the PRC expires in October 2006. The Company fully
expects to renew its agreement and intends to continue to expand its operations
in the PRC, but there can be no assurance that the processing agreement will be
extended or renewed and the Company will be able to continue to operate in the
PRC. Pursuant to a land use agreement, the Company has the right to use the land
through the year 2038. At the end of the term, a PRC governmental agency will
own the facilities. At that time, the Company expects to be able to lease the
PRC land and improvements thereon at then prevailing rates.
Other Jurisdictions
The Company owns an 11,000 square foot building on a one-half acre parcel in the
UK which is used in connection with its operations in the UK. The Company also
leases warehouse and/or office space in France, Canada, and Germany in
connection with the activities of its subsidiaries in those jurisdictions.
F-23
Capital Leases
The Company also leases various fixed assets which have been classified as
capital leases. The initial terms of such capital leases range from three to
five years and expire at various times through 2003. Monthly payments on those
leases range from approximately $300 to $45,000.
The following is a summary of assets under capitalized leases:
June 30, July 1,
2001 2000
-------- -------
Assets under capitalized leases $3,555,457 $6,233,170
Less: accumulated amortization (1,578,641) (1,598,623)
--------- ---------
$1,976,816 $4,634,547
========= =========
Future minimum rental payments are as follows:
Operating leases Capital leases
---------------- --------------
Fiscal Year
2002 $1,839,728 $518,602
2003 1,252,835 -
2004 1,031,665 -
2005 756,073 -
2006 514,805 -
Thereafter $1,182,597 -
--------- ---------
Total minimum payments $6,577,703 $518,602
=========
Less amounts representing interest (15,055)
------
Present value of net minimum lease payments $503,547
========
The effective interest rates on capital leases range from approximately 11% to
12%. Rental expense for operating leases of approximately $1,942,543, $1,203,859
and $1,336,000 was incurred for Fiscal 2001, Fiscal 2000 and Fiscal 1999,
respectively.
Executive SERPS and Employment Agreements
Pursuant to the employment agreement between the Company and Ira B. Lampert
dated as of May 1, 1997, as amended (the "Lampert Agreement"), Mr. Lampert
serves in the capacities of Chairman, Chief Executive Officer and President of
the Company. The Lampert Agreement provides for an annual salary of $900,000
(voluntarily reduced effective as of July 1, 2001 to $800,000 per annum), has a
term of four years and provides for the term of employment to be automatically
extended for one additional day for each day of the term of employment during
which neither party notifies the other that the term should not be extended. The
Lampert Agreement prohibits Mr. Lampert from competing with the Company for a
one-year period following the termination of his employment with the Company.
F-24
The Company adopted a supplemental executive retirement plan which was later
amended and restated as of April 19, 2000 (the "Lampert SERP") for the benefit
of Mr. Lampert. A specified amount, currently $500,000, is credited to the
Lampert SERP account each year (the "Yearly Credit"). The Yearly Credits are
100% vested and not subject to forfeiture. Each time the Company credits a
Yearly Credit to the Lampert SERP account, the Company simultaneously
contributes an amount equal to such credit to a trust established for the
purpose of accumulating funds to satisfy the obligations incurred by the Company
pursuant to the Lampert SERP.
The Company also has employment agreements with its other executive officers
that provide for annual salaries ranging from approximately $180,000 to
$450,000, plus certain other fringe benefits. These agreements prohibit the
executives from competing with the Company for one year following termination of
employment with the Company. Each agreement contains, among other things,
termination provisions that may result in the Company being obligated to make
severance payments equal to one year's base salary plus certain other fringe
benefits.
In light of the cost-cutting measures recently undertaken by the Company,
executive officers consisting of Brian F. King, Keith L. Lampert, Urs W.
Stampfli and Harlan I. Press all verbally agreed, on a voluntary basis, to
accept an approximately 11% decrease in their base salaries effective as of July
1, 2001.
In connection with a one-time grant of deferred compensation to the following
executive officers, effective as of April 19, 2000, the Company adopted a
Supplemental Executive Retirement Plan and Agreement for the benefit of each of
Brian F. King, Keith L. Lampert, Urs W. Stampfli and Harlan I. Press (the
"Executive SERPs"). The Company simultaneously contributed the following amounts
to trusts established for the purpose of holding funds to satisfy the Company's
obligations under each of the Executive SERPs: (i) under the plan for Brian F.
King, $750,000; (ii) under the plan for Keith L. Lampert, $450,000, (iii) under
the plan for Harlan I. Press, $165,000, and (iv) under the plan for Urs W.
Stampfli, $110,000. The amounts in the Executive SERP accounts vest, so long as
the executive continues to be employed by the Company, in three equal annual
installments beginning January 1, 2001 or immediately upon: (i) a change of
control of the Company; or (ii) a termination of the executive's employment by
the Company without cause. The Company simultaneously approved a one-time grant
of deferred compensation to Ira B. Lampert in the amount of $1,549,999 with the
same vesting schedule as under the Executive SERPs. The Lampert SERP includes
appropriate terms to govern the one-time grant of deferred compensation to Mr.
Lampert. The Lampert SERP and the Executive SERPs balances, including investment
earnings, are recorded as part of deferred compensation and included in other
assets with a corresponding liability included as part of long term liabilities
in the accompanying consolidated balance sheets at June 30, 2001 and July 1,
2000.
License and Royalty Agreements
Effective January 1, 2001, the Company entered into a new twenty-year license
agreement with Fuji Photo Film Ltd ("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 an amount equal to the present value
of the future payments. The intangible asset is being amortized over the life of
the agreement.
The Company has License and Royalty Agreements that require the payment of
royalties based on the manufacture and/or sale of certain products which expire
at various dates through Fiscal 2021.
F-25
NOTE 13 -- 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: (a) awarded the Company $1,133,246 in damages; such
damages included certain fees which the Company previously paid to various
attorneys, (b) denied certain other claims made by the Company including its
request for prejudgment interest on the award, and (c) 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 claims of 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 the Company in the
Superior Court of New Jersey Law Division Monmouth County (Docket No.
MON-L-184501). The action: (a) seeks to modify the aforesaid award to the
Company from the amount of $1,133,246 to an amount of $1,103,277; (b) seeks to
permit Benun to set off the aforesaid loan and interest amount, in the aggregate
amount of $193,000, against the amount awarded to the Company; and (c) seeks
damages for (i) an alleged failure to provide Benun with alleged agreed upon
fees for allegedly guaranteeing Concord debt and (ii) 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 issued a
press release alleging that his claims together are worth more than $4 million.
The Company has been contesting and continues to vigorously contest the action
and believes Benun's claims to be without merit. The claims of Benun for alleged
guarantee amounts and stock options (c(i) and c(ii) above) were presented in the
aforesaid arbitration. The Arbitrator in that case ruled that the aforesaid
claims were not appropriately before the Arbitrator.
On June 22, 2001, the Court denied an application made on behalf of Benun to
modify the arbitration award to reduce the amount awarded to Concord and
therefore denied the relief sought as described at (a) and (b) in the prior
paragraph. In August 2001, the Court granted Concord's motion for partial
summary judgment, thereby dismissing Benun's claims for option rights and
guarantee fees, which claims Benun had reported to be worth more than
$4,000,000, and therefore denied the relief sought as described in c (i) and c
(ii) of the prior paragraph. Concord does not know whether Benun will appeal any
court decision made. Various nonmaterial limited issues, primarily related to
post judgment interest, remain before the Court. The Company has not accrued any
income with respect to the award in this matter.
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.
F-26
NOTE 14 - GEOGRAPHIC AREA INFORMATION:
Pursuant to SFAS No. 131, Disclosure About Segments of a Business Enterprise and
Related Information, the Company is required to report segment information. As
the Company only operates in one business segment and sells only image capture
devices, no additional reporting is required. Set forth below is a summary of
selected financial information regarding the Company's geographic operations
(the Americas consists of Latin America and North America; Europe consists of
the United Kingdom and the other countries in the European Union; Asia consists
of Hong Kong and the PRC):
Year Ended
----------------------------------------------
June 30, July 1, July 3,
Sales made to unaffiliated customers: 2001 2000 1999
---- ---- -------
Americas $ 24,271,000 $ 17,593,000 $ 8,389,000
Europe 12,433,000 13,085,000 8,702,000
Asia 146,709,000 142,480,000 101,327,000
----------- ----------- -----------
Total $ 183,413,000 $ 173,158,000 $ 118,418,000
============= ============= =============
Sales to unaffiliated customers exclude intercompany sales of approximately
$29,989,212, $26,442,000 and $12,474,000 for Fiscal 2001, Fiscal 2000, and
Fiscal 1999, respectively. The basis of accounting for intercompany sales is
cost plus a manufacturing profit.
Year Ended
---------------------------------------------
June 30, July 1, July 3,
Income (loss) before income taxes: 2001 2000 1999
---- ---- ----
Americas ($126,000) $ 27,000 ($1,470,000)
Europe (604,000) 190,000 (979,000)
Asia (11,971,000) 16,630,000 11,051,000
---------- ---------- ----------
Total $ (12,701,000) $ 16,847,000 $ 8,602,000
============== ============ ===========
June 30, July 1,
Identifiable assets: 2001 2000
---- ----
Americas $ 120,449,000 $ 29,080,000
Europe 11,262,000 13,279,000
Hong Kong 81,955,000 91,644,000
---------- ----------
Total $ 213,666,000 $134,003,000
============= ============
F-27
NOTE 15 -- RELATED PARTY TRANSACTIONS:
A corporation controlled by J. David Hakman has provided consulting services to
the Company since 1997 pursuant to an engagement agreement entered into on
September 25, 1997, as later amended and supplemented (the "Hakman Agreement").
Pursuant to the Hakman Agreement, the Company granted a warrant to purchase up
to 260,000 shares of Common Stock at an exercise price of $2.25 per share to the
corporation controlled by Mr. Hakman. In October 2000, the corporation exercised
the warrant as to all 113,000 shares that had vested up until that time. As of
August 2, 2001, 147,000 shares remained subject to the warrant and 20,000 of
those shares were vested and exercisable.
NOTE 16 -- OTHER INCOME, NET:
Included in the accompanying consolidated statements of operations under the
caption, other income, net is the following:
June 30, July 1, July 3,
2001 2000 1999
---- ---- ----
Other interest (income) ($5,123,000) ($1,359,231) ($1,098,728)
Other expense, net 361,858 177,042 68,856
Directors' fees 218,000 157,000 157,000
Foreign currency (gain) loss, net (348,283) 143,427 432,000
------- ------- -------
Other income, net ($4,891,425) ($881,762) ($440,872)
========== ========= ========
NOTE 17 - QUARTERLY RESULTS (UNAUDITED)
Quarter Ended
-------------------------------------------
Sept 30, Dec 30, Mar 31, June 30,
2000 2000 2001 2001
--------- ------- -------- --------
(Dollars in thousands except per share data)
Net sales $62,723 $58,945 $24,458 $37,286
Gross profit 15,731 13,432 1,076 576
Operating (loss) income 6,764 7,275 (3,535) (23,205)
Net (loss) income 6,206 6,787 (3,737) (21,026)
Basic (loss) earnings per share 0.28 0.25 (0.14) (0.77)
Diluted (loss) earnings per share 0.25 0.23 (0.14) (0.77)
F-28
Quarter Ended
---------------------------------------
Oct 2, Jan 1, April 1, July 1,
1999 2000 2000 2000
---- ---- ---- ----
Net sales $41,238 $44,522 $32,717 $54,681
Gross profit 11,339 12,373 8,376 14,922
Operating income 4,273 4,877 2,295 5,402
Net income 3,896 4,518 2,116 9,069
Basic earnings per share 0.18 0.21 0.10 0.41
Diluted earnings per share 0.16 0.19 0.09 0.37
NOTE 18 - SUBSEQUENT EVENT
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 will expire on October 2, 2001 unless extended by the
Company.
F-29
Schedule II
CONCORD CAMERA CORP.
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
Column A Column B Column C Column D Column E
Additions
Balance at Charged to Charged to
Description beginning of costs and other Balance at end of
----------- period expenses accounts Deductions period
------ -------- -------- ---------- ------
Allowance for doubtful accounts, discounts and allowances
Fiscal Year:
1999 $563,123 ($163,418) -- -- $399,705
2000 $399,705 $25,179 -- -- $424,884
2001 $424,884 $277,944 -- -- $702,827
Note: This schedule does not include approximately $15,800,000 related to a
write-off of an account receivable in Fiscal 2001.