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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 July 1, 2000
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, Suite 650N, 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 July 15, 2000 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 $448,053,000.
As of July 15, 2000 the number of shares outstanding of the Company's Common
Stock was 22,283,208.
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DOCUMENTS INCORPORATED BY REFERENCE
See Exhibit Index -- Page 32
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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 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 year-end 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.
Item 1. Business.
Photography Market Overview
According to the Photo Marketing Association, approximately $6.5 billion
of amateur cameras were sold in the U.S., Japan, Germany, the U.K. and France
during 1998, the most recent year for which data is available. Sales in the
U.S. accounted for approximately 40.0% of industry sales, followed by Japan
(30.0%), Germany (15.0%), the U.K. (10.0%) and France (5.0%). The three fastest
growing segments in the image capture device market are Advanced Photo System
(APS), digital and single use cameras. During the period from 1996 through
1998, sales in the U.S. of APS, digital, and single use cameras grew at
compound annual growth rates of 67.9%, 65.0% and 23.9%, respectively.
There are five 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. On a unit basis, single use cameras account for about 85.0%
of all cameras sold, but only about 27.0% of amateur camera industry
revenues. The total global market for single use cameras is estimated to
be $1.8 billion.
o Instant cameras -- Instant photography (most commonly associated with
Polaroid) provides the advantage of instant photographs. The cost per
print is substantially higher than 35mm and APS prints with a difference
in quality. These cameras can be purchased in both a traditional version
and a single use configuration. Instant cameras are a $100 million plus
worldwide industry. Although this segment of the camera industry has
experienced relatively flat sales for most of the past decade, new product
launches during the last two years have had a positive impact on sales
growth.
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 be easily downloaded to a computer for
manipulation, reproduction and storage. Approximately 3.1 million digital
cameras were sold worldwide in 1998, generating $1.6 billion in sales. In
1999, the digital market grew to 6.5 million units with a value of $3.5
billion.
o 35mm and APS cameras -- This category includes essentially all other
(non-single use) cameras that use silver halide film and do not have
interchangeable lenses. Film formats include both 35mm and APS (24mm).
Introduced in 1996, APS offers advanced imaging features relative to 35mm
film. This category accounted for approximately $2.2 billion of amateur
camera industry revenues in 1998.
o Single lens reflex cameras (SLR) -- 35mm and APS SLR cameras offer
interchangeable lenses and use a complex arrangement of mirrors to allow
the user to view an image through the actual photographic lens instead of
an optic viewfinder. SLR cameras generated revenues of about $800 million
in 1998. SLR sales have generally been falling for most of the past 15
years. We do not compete in the SLR market.
Market Trends
We expect to capitalize on a number of trends within the image capture
industry, including the following:
1
o Growth of Single Use Cameras. Single use cameras are inexpensive
(suggested retail price $4-$10), easy to use and deliver high quality
photographs. From 1996 through 1998, single use cameras experienced
compound annual growth of 23.9%, and we expect the market to grow at a
compound annual rate of 13.5% over the next five years.
o Growth of Digital Photography. Digital photography is one of the fastest
growing areas of consumer electronics. According to International Data
Corporation, digital cameras are projected to achieve a 45.0% compound
annual growth rate through 2004. Despite their relatively recent
acceptance in the consumer market, digital cameras have already surpassed
instant cameras, SLRs and traditional APS cameras in market value. We are
well positioned to address this market, with one of the largest clean room
facilities in the world dedicated to the manufacture of digital cameras.
We recently completed two new 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 impossible. Device manufacturers have
begun to incorporate image capture devices into cellular phones, personal
digital assistants, laptop computers and security monitoring devices.
While we do not currently offer any such products, we have established
relationships with several key partners in the electronic device market to
pursue such opportunities in the future.
o Impact of APS on Traditional 35mm Film. The APS film format was
developed by a consortium of film and camera companies to invigorate
traditional film and camera sales. APS offers multiple benefits to the
consumer, including smaller cameras (by virtue of its 24mm film
cartridge), one-step loading, multiple print formats (panoramic, high
definition and classic) and the ability to encode information onto the
print. Since its introduction in 1996, the APS format has grown steadily,
from 1.1 million units in 1996 to an estimated 3.1 million units in 1998.
Much of this growth has come at the expense of the 35mm format, which has
experienced a 15.0% unit decline over the same period. As a licensee of
the APS film format, we expect to benefit from the growth of APS cameras.
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. In keeping
with this trend, during the past year we have entered into two new OEM
relationships, renewed two existing relationships and expect to enter into
similar relationships on an ongoing basis.
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 and traditional and single use cameras in
35mm, APS and instant formats. 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 those products incorporating certain of the
co-developed technology.
Our product line focuses on the three fastest growing segments in the
image capture product market: APS, digital and single use cameras. According to
the Photo Marketing Association, in the United States during the period from
1996 through 1998, sales of APS, digital and single use cameras grew at
compound annual rates of 67.9%, 65.0% and 23.9%, respectively. We believe we
are the fourth largest manufacturer of single use cameras in the world (behind
Eastman Kodak Co., Fuji Photo Film Co. Ltd. and Konica Corporation). Based on
our estimates, we produced approximately 13.7% of all single use cameras sold
in 1999 worldwide excluding Japan. We estimate the single use camera market
will grow at a worldwide compound annual growth rate of 13.5% during the next
five years.
2
We manufacture products in a facility we own 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 monthly cost
per production worker is approximately $184. 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. As of July 1, 2000, we employed
approximately 80 engineers and designers.
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 are beginning to
manufacture a full line of lower priced digital cameras. Our average revenue
from our existing products ranges from $3 to $17 per unit, while average
revenue from our new digital products is expected to range from $40 to $125 per
unit. We recently completed two development projects, one for an entry level
digital camera having a $99 suggested retail price and another for a
full-featured digital camera having a $200-$300 suggested retail price. Our
design teams are 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. Worldwide digital camera sales are projected
to grow at a compound annual rate of approximately 45.0% over the next five
years, with shipments expected to reach 41.6 million units in 2004, according
to International Data Corp.
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, Eastman Kodak
Co., Ferrania S.p.A., KB Gear Interactive, Inc. and Polaroid Corp. 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. We also intend to capitalize
on our recent entry into the lower-priced digital camera market to attract new
OEM customers.
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 now include Argus, Boots, K-Mart, Target, Walgreens,
Eckerds 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, our
distribution and our retail competitive positions.
Products
We design, develop, manufacture and sell image capture products. Our
products include digital image capture devices and traditional and single use
cameras in 35mm, APS and instant formats. We often 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 those products
incorporating the developed and co-developed technology.
3
Existing Products. We manufacture digital, traditional and single use
cameras in 35mm, APS and instant formats. 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. Our
existing products have a suggested retail price of $5 to $169, while our
digital cameras will initially have a suggested retail price of $99 to $300.
New Products. We design and develop new products, both independently and
on a co-development basis with existing and potential OEM customers. Recently
completed projects include both an entry level digital camera having a $99
suggested retail price and a full-featured digital camera having a $200 to $300
suggested retail price.
Our full-featured digital camera is intended to be the smallest and
lightest camera on the market in its category. This product has a VGA image
sensor, 3x optical zoom, an internal microdisplay and image enhancement
software providing up to 1.2 megapixel interpolated resolution. It easily fits
into a shirt pocket or purse, making it a convenient traveling companion. The
product is designed to provide significant battery life, offering more than 300
images on one lithium battery. We anticipate the product's cost basis to
decline with increasing volume. We anticipate commencing production and
shipping of this product by late summer or early fall of 2000. Over the next
several years, digital cameras are expected to represent a material portion of
our sales as well as worldwide camera sales. New products are, and we expect
they will continue to be, designed both independently and on a co-development
basis with existing and potential OEM customers.
Concord's expenditures for product design and development increased from
$3.1 million in Fiscal 1997 to more than $4.9 million in Fiscal 2000. We
anticipate product development costs will increase further in Fiscal 2001. 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.
Existing OEM Relationships
We have developed products and long-term relationships with several of the
world's largest and most successful film, camera, and imaging manufacturers.
Currently, our three largest OEM customers, Polaroid, Kodak and Agfa, accounted
for approximately 25.1%, 22.4% and 11.7% of sales, respectively, in Fiscal
2000. All of our OEM agreements require substantial minimum annual purchases.
In Fiscal 1999 our ten largest customers accounted for approximately 86.9% of
sales. 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.
Ferrania S.p.A. (formerly Imation). We established a contractual OEM
relationship with Imation (now Ferrania S.p.A.) for the production of single
use cameras in Fiscal 1995. Products developed under this contract, which was
renewed in Fiscal 2000, include our various daylight and flash single use
camera models.
KB Gear. In May 2000 we announced the co-development of KB Gear's next
generation, entry-level still digital camera, the Jam Cam 3.0(TM), which we
manufacture exclusively at our PRC facilities. We commenced shipping this
product, which has a suggested retail price of $99, in early August 2000.
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, and we believe the camera is now among the best selling
APS cameras in the world. 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. We anticipate that the contract will contribute approximately $20
to $25 million of revenues annually, and we anticipate that it will serve as a
platform for additional contract manufacturing opportunities with Kodak. To our
knowledge, this contract represents the first time Kodak has outsourced any of
its single use camera manufacturing.
4
Polaroid. Capitalizing on an existing relationship with Polaroid for the
production of single use cameras, 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. We are involved in discussions with Polaroid looking
toward the production of additional products.
Future OEM Relationships
We believe we are positioned to become one of the prime beneficiaries of
an outsourcing trend in the traditional, 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 OEM's with value added
assistance in the design, development and testing of innovative technologies.
Our ability to serve not only as a reliable, quality contract manufacturer but
also as a valuable strategic partner positions us for continued success 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:
o an established brand name,
o existing channels of distribution,
o multiple product outsourcing potential (traditional, single use and
digital cameras), and
o 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. At the same time we have developed and are beginning to
manufacture a full line of lower priced digital cameras. Our average revenue in
existing products is $3 to $17, compared to average revenue in our new digital
products of approximately $40 to $125. Our product development capabilities
have enabled us to offer proprietary assistance in design and product
development. Our team of designers, product development specialists and
manufacturing managers has been able to develop extremely compact designs that
permit numerous features to be incorporated.
Direct Sales to Retailers
We make direct sales to retailers on a worldwide basis through Concord
Americas covering the U.S., Latin America and Canada, Concord Europe covering
the U.K., France and Germany and Concord Asia covering Hong Kong. Concord Asia
is also responsible for all 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 eye Q(TM)
Our worldwide direct sales customers include the following major discount, drug
and retail chains: Argus, Boots, K-Mart, Target, Walgreens, Eckerds and
Wal-Mart. Wal-Mart, one of our largest direct sales customers, has designated
Concord as a Wal-Mart "Supplier of Excellence" for the first quarter of 2000, a
prestigious award presented to a select group of companies that supply Wal-Mart
with quality merchandise, have superior fulfillment execution and a firm
understanding of the market to assist Wal-Mart in better serving its customers.
We also sell our products to other consumer product companies who use the
cameras as premiums in connection with their product sales.
5
We have in-house sales personnel who make a majority of our U.S. sales. To
assist our in-house staff, we also have approximately 18 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 $54.9 million in
Fiscal 2000 and $36.8 million in Fiscal 1999. This increase was fueled by the
introduction of new product lines and models, some of which resulted from our
development and co-development programs with OEM customers.
Competition
The camera and photographic products 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
In Fiscal 1995 we entered into a license agreement with Hallmark
Licensing, Inc., as agent for Binney & Smith Properties, Inc. Under the
agreement, we license certain trademarks regarding Crayola and certain
associated marks, trade names and logos for use with single use and traditional
35mm and APS format cameras. The agreement expires December 31, 2001 and
includes an automatic renewal provision.
We are one of four companies licensed by Fuji to manufacture and
remanufacture single use cameras. Single use cameras accounted for 48.2% of our
Fiscal 2000 sales. We have been contractually restricted from entering the
Japanese market. The restriction lapses at the beginning of 2001. In June 1999,
the International Trade Commission (ITC) banned the unlicensed importation of
new and reloaded single use cameras in the United States due to patent
infringement. The ITC's decision has been appealed to the Court of Appeals for
the District of Columbia. If the decision is upheld, we believe it will reduce
competition in the single use camera product line.
We also have an action pending in federal court against Fuji with respect
to our non-exclusive license to use certain Fuji intellectual property in
connection with the manufacture and sale of single use cameras. Termination of
the license would have a material adverse effect on our single use camera
business if Fuji's patents were found to be valid and infringed by our single
use cameras. See "Legal Proceedings."
Manufacturing
We conduct all of our manufacturing activities in the PRC. Our vertically
integrated manufacturing activities include plastic injection molding of lenses
and other parts, stamping and machining of metal parts, use of surface mount
technology, bonding, assembly and quality inspection.
Modernized 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.
In February 2000 we opened a new production facility in the PRC dedicated
to digital image capture device manufacturing. 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 Concord design and development engineers
located in nearby Hong Kong.
6
Equipment and Raw Materials. We own or lease the tools and equipment
necessary to manufacture most of the components used in our cameras. 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.
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 November 2002. 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 on 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 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.
Employees
As of July 1, 2000, we had 218 employees, approximately 56.0% 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 6,500 workers at our
facilities in the PRC. To date, no labor dispute has ever disrupted our
operations. Our ongoing relationship with these workers is good.
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.
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 12,000 square feet.
These leases expire on August 31, 2010 and January 4, 2009, respectively.
In Hong Kong, we own one floor and lease four floors of business and
warehouse space. In the UK, 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 Baoan County, Shenzen
Municipal, 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,
7
dormitories and related ancillary buildings. Under the land use agreement, we
have the right to use the land through the year 2042. At the end of the term, a
PRC governmental agency will own the facilities and we will have the right to
lease the PRC 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 has submitted a counterclaim in which he alleges
wrongful termination of his employment and denial of benefits by the Company.
Benun's counterclaim does not contain any statement of the dollar amount of his
alleged damages, although he has written to the Company asserting damages of
approximately $6.7 million. The Company is vigorously pursuing its action as
well as defending the counterclaim. On August 24, 1999, the arbitrator upheld
the propriety of Concord's termination for cause of Benun. The arbitrator found
that Benun perpetrated frauds on the Company by diverting and embezzling
Company monies. The Company is pursuing damage claims against Benun related to
the frauds and embezzlement. Phase two of the arbitration is scheduled to begin
during the week of September 25, 2000.
Fuji. On December 30, 1997, the Company commenced in the United States
District Court of the Southern District of New York (the "Court") an action
against Fuji seeking to enforce the terms of a Settlement Agreement between the
Company and Fuji (the "Settlement Agreement") and to restrain Fuji from
terminating the Settlement Agreement. Under the terms of the Settlement
Agreement, the Company has been granted a worldwide (subject to certain
geographic limitations), non-exclusive license to use certain Fuji intellectual
property in connection with the manufacture and sale of single use cameras.
Termination of the license would have a material adverse effect on the
Company's single use camera business if Fuji's patents were found to be valid
and infringed by the Company's single use products. On January 9, 1998, the
Court granted the Company's request for an order restraining Fuji from
terminating the Settlement Agreement. Pending a final judicial determination of
the disputes, the restraining order will continue in effect as long as the
Company refrains from making any further shipments pursuant to the purchase
order that gave rise to the dispute. Fuji filed a motion for summary judgment,
and the Company filed a motion seeking to preclude Fuji from presenting certain
expert testimony. Both motions were denied by the Court, but Concord will be
allowed to reassert its motion at trial if Fuji does not establish an adequate
evidentiary basis for the expert testimony. The Court has scheduled this matter
for trial beginning on October 31, 2000.
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, including those described above, will not have a
material adverse effect on its financial position or results of operations.
8
Item 4. Submission of Matters to a Vote of Security Holders.
Our Annual Meeting of Shareholders was held on April 24, 2000. Our
shareholders elected each of our nominees to the Board of Directors by the
following votes1:
Mr. Ira B. Lampert 9,445,530 for, 1,296,723 withheld;
Mr. Eli Arenberg 10,248,413 for, 493,840 withheld;
Mr. Ronald S. Cooper 10,252,539 for, 489,714 withheld;
Mr. Morris H. Gindi 10,251,939 for, 490,314 withheld;
Mr. Joel L. Gold 10,252,039 for, 490,214 withheld;
Mr. J. David Hakman 10,129,338 for, 612,915 withheld; and
Mr. Kent M. Klineman 10,248,864 for, 493,389 withheld.
- ------------
1 The numbers of shares set forth above are not split-adjusted.
At the Annual Meeting, our shareholders also approved two amendments to
the Company's Certificate of Incorporation. The first amendment, increasing the
authorized common stock from 40,000,000 shares to 100,000,000 shares, was
approved by the following vote: (i) for, 9,956,513; (ii) against, 774,199; and
(iii) abstain, 11,541. The second amendment, authorizing the Company to issue
up to 1,000,000 shares of preferred stock, was approved by the following vote:
(i) for, 3,407,560; (ii) against, 1,987,157; (iii) abstain, 23,402; and (iv)
not voted, 5,324,134.
The shareholders also ratified the appointment of Ernst & Young LLP as our
independent auditors for Fiscal 2000 by the following vote: (i) for,
10,732,474; (ii) against, 2,935; and (iii) abstain, 6,844.
9
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 sets forth the high and
low closing prices for the common stock as reported on the Nasdaq National
Market for the period from July 1, 1998 through July 1, 2000. The prices set
forth below have been adjusted for the two-for-one stock split effective on
April 14, 2000 to shareholders of record on March 27, 2000.
High Low
----------- -----------
Quarter ended
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
July 3, 1999 .................. $ 2.84 $ 1.78
April 3, 1999 ................. $ 2.50 $ 2.02
January 2, 1999 ............... $ 2.75 $ 1.53
October 3, 1998 ............... $ 3.38 $ 1.53
The closing price of our common stock on the Nasdaq National Market on
June 30, 2000 was $20.875 per share.
As of July 1, 2000, there were approximately 1,041 shareholders of record
of our common stock.
Item 6. Selected Financial Data.
Fiscal Year Ended
--------------------------------------------------------------------
July 1, July 3, June 30, June 30, June 30,
2000 1999 1998 1997 1996
----------- ----------- ------------ ----------- -----------
(Dollars in thousands except per share data)
STATEMENT OF
OPERATIONS DATA:
Net sales .................................. $173,158 $118,418 $102,663 $65,747 $66,782
Cost of product sold ....................... 126,148 86,664 74,771 48,722 49,293
-------- -------- -------- ------- -------
Gross profit ............................... 47,010 31,754 27,892 17,025 17,489
Operating expenses ......................... 31,045 23,593 21,892 17,864 19,173
-------- -------- -------- ------- -------
Operating income (loss) .................... 15,965 8,161 6,000 (839) (1,684)
Other (income), net ........................ (883) (441) (517) (123) (30)
-------- -------- -------- ------- -------
Income (loss) before taxes ................. 16,848 8,602 6,517 (716) (1,654)
Provision (benefit) for taxes .............. (2,751) 893 504 117 80
-------- -------- -------- ------- -------
Net income (loss) .......................... $ 19,599 $ 7,709 $ 6,013 ($ 833) ($ 1,734)
======== ======== ======== ======= =======
Basic earnings (loss) per share* ........... $ 0.89 $ 0.35 $ 0.27 ($ 0.04) ($ 0.08)
======== ======== ======== ======= =======
Diluted earnings (loss) per share* ......... $ 0.81 $ 0.33 $ 0.26 ($ 0.04) ($ 0.08)
======== ======== ======== ======= =======
BALANCE SHEET DATA:
Working capital ............................ $ 52,600 $ 37,447 $ 20,813 $13,994 $16,696
======== ======== ======== ======= =======
Total assets ............................... $134,003 $ 96,647 $ 72,082 $53,088 $49,850
======== ======== ======== ======= =======
Total debt ................................. $ 19,555 $ 29,735 $ 15,599 $11,197 $ 9,348
======== ======== ======== ======= =======
Total stockholders' equity ................. $ 66,290 $ 42,696 $ 36,105 $29,502 $30,478
======== ======== ======== ======= =======
- ------------
* Per share data for all periods presented has been restated to reflect a
two-for-one stock split. For further discussion see Note 7 to the
Consolidated Financial Statements.
10
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 Year ended July 1, 2000 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 traditional and single use cameras in
35mm, Advanced Photo System (APS) and instant formats. We manufacture and
assemble our products in the PRC for direct sales under Company brand names,
private label names, and on an original equipment manufacturer ("OEM") basis.
Over the last five 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 sell our products worldwide, through Concord Americas ("Concord
Americas") covering the U.S., Latin America and Canada, Concord Europe
("Concord Europe") covering the U.K., France and Germany, and Concord Asia
("Concord Asia") covering Hong Kong. Concord Asia also is responsible for all
OEM sales as well as FOB Hong Kong sales to large retail customers in the
Americas and Europe. We market our products under the brand names Concord(R),
Keystone(R), Le Clic(R), Argus(R), Apex(R), Goldline(R) and Fun Shooter(R).
As a result of our strategy over the last five years, we have diversified
our sales mix. Direct sales to our retail sales and distribution customers
accounted for approximately 31.7% of sales for the Fiscal Year ended July 1,
2000 ("Fiscal 2000") compared to approximately 60.7% of sales during the Fiscal
Year ended June 30, 1996 ("Fiscal 1996") and sales to OEM customers represented
68.3% of sales in Fiscal 2000 compared to 39.3% of sales in Fiscal 1996. The
design and development expertise that has allowed us to obtain OEM contracts
and, in many cases, develop new, additional products for our OEM customers, has
allowed us to increase sales and gross profits to $173,158,000 and $47,010,000,
respectively, in Fiscal 2000 from $66,782,000 and $17,489,000, respectively, in
Fiscal 1996. The evolution of our OEM and branded products into digital and
other image capture devices has diversified our product base. Sales of single
use cameras accounted for 48.2% of sales in Fiscal 2000 compared to 65.2% in
Fiscal 1996.
For Fiscal 2000, our OEM sales were $118,222,000 and our retail and
distribution sales were $54,936,000. For Fiscal 2000, retail and distribution
sales were $17,593,000 to Concord Americas customers, $13,084,000 to Concord
Europe customers and $24,259,000 to Concord Asia customers.
We expect to continue to obtain additional business from these customers
and establish new OEM relationships by positioning ourselves as an innovative
designer, developer and manufacturer of high quality, low cost image capture
products.
11
RESULTS OF OPERATIONS
Fiscal 2000 Compared to Fiscal 1999
Revenues
Revenues for Fiscal 2000 and the Fiscal Year ended July 3, 1999 ("Fiscal
1999") were approximately $173,158,000 and $118,418,000, respectively, an
increase of approximately $54,740,000, or 46.2%. This increase in sales
resulted principally from increases in sales to OEM and retail and distribution
customers. OEM sales in Fiscal 2000 and Fiscal 1999 were approximately
$118,222,000 and $81,590,000, respectively, an increase of approximately
$36,632,000, or 44.9%. Retail and distribution customer sales for Fiscal 2000
and Fiscal 1999 were approximately $54,936,000 and $36,828,000, respectively,
an increase of approximately $18,108,000, or 49.2%. The increase in sales to
OEM and retail and distribution customers was primarily due to increased sales
to existing OEM and retail and distribution customers and, to a lesser extent,
new OEM and retail and distribution customers.
Sales of Concord Asia for Fiscal 2000 and Fiscal 1999, including FOB Hong
Kong sales to Concord Americas and Concord Europe customers for Fiscal 2000 and
Fiscal 1999 of $24,242,000 and $19,542,000, respectively, were approximately
$142,480,000 and $101,327,000, respectively, an increase of approximately
$41,153,000, or 40.6%. The increase was primarily due to higher sales to OEM
and, to a lesser extent, retail and distribution customers.
Sales of Concord Americas for Fiscal 2000 and Fiscal 1999, including FOB
Hong Kong sales to Concord Americas customers were approximately $29,538,000
and $20,160,000, respectively, an increase of approximately $9,378,000, or
46.5%. 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 and Fiscal 1999, including FOB
Hong Kong sales to Concord Europe customers were approximately $25,382,000 and
$16,473,000, respectively, an increase of approximately $8,909,000, or 54.1%.
This increase was due to increased sales to both existing and new customers.
Gross Profit
Gross profit for Fiscal 2000 and Fiscal 1999 was approximately $47,010,000
and $31,754,000, respectively, an increase of approximately $15,256,000, or
48.0%. 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 $4,921,000 for Fiscal 2000 compared to
$4,815,000 for Fiscal 1999.
Operating Expenses
Operating expenses, consisting of selling, general and administrative and
interest expense, increased by $7,452,000, or 31.6%, to $31,045,000 in Fiscal
2000 from $23,593,000 in Fiscal 1999. As a percentage of sales, operating
expenses, consisting of selling, general and administrative and interest
expense decreased to 17.9% in Fiscal 2000 from 19.9% in Fiscal 1999.
Selling expenses increased by $3,221,000, or 40.7%, to $11,143,000 in
Fiscal 2000 from $7,922,000 in 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% in Fiscal 2000 from 6.7% in Fiscal 1999.
General and administrative expenses increased by $4,417,000, or 36.2%, to
$16,633,000 in Fiscal 2000 from $12,216,000 in Fiscal 1999. The increase was
primarily attributable to the Company continuing to build its infrastructure to
accommodate its growth. As a percentage of sales, general and administrative
expenses decreased to 9.6% in Fiscal 2000 from 10.3% in Fiscal 1999.
12
Interest expense decreased by $186,000, or 5.4%, to $3,269,000 in Fiscal
2000 from $3,455,000 in Fiscal 1999. As a percentage of sales, interest expense
decreased to 1.9% in Fiscal 2000 from 2.9% in Fiscal 1999.
Other Income, Net
Other income, net was approximately $882,000 and $441,000 in Fiscal 2000
and Fiscal 1999, respectively. Other income, net includes directors' fees,
certain public relations costs, foreign exchange gains and losses and interest
income. 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. 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. In Fiscal 2000 and Fiscal 1999, the
Company's hedging activities were immaterial and, at July 1, 2000, there were
no forward exchange contracts outstanding.
Income Taxes
In May 1992, the Hong Kong Inland Revenue Department notified the
Company's Hong Kong subsidiary ("Concord HK") that its annual tax rate
commencing July 1, 1992 would be 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 for 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 condition.
The Company does not provide 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
$48,353,000 as of July 1, 2000. 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 July 1, 2000,
Concord had net operating loss carryforwards for U.S. tax purposes of
approximately $6,647,000, which expire as follows: $4,116,000 in 2008,
$2,353,000 in 2009 and the balance thereafter. Losses for state tax purposes
begin to expire in 2002.
Historically, the Company has maintained full valuation allowances on its
deferred tax assets. 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
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 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 in Fiscal 2000. The Company recognized a net income tax benefit of
$2,751,000 for Fiscal 2000, of which
13
approximately $1,100,000 related to current tax expense for foreign operations.
For Fiscal 2000, Fiscal 1999 and Fiscal 1998, the Company's effective tax rate
was (16.3%), 10.4% and 7.7%. The Company's future effective tax rate will
depend on the mix between foreign and domestic taxable income and losses, and
the statutory tax rates of the relevant tax jurisdictions.
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 $7,709,000, or $0.33 per diluted share, for Fiscal 1999.
Significantly affecting net income for Fiscal 2000 was a deferred income tax
benefit of $4,232,000 which primarily arose from the reversal of a valuation
allowance and the recognition of a deferred tax asset. The deferred tax benefit
was partially offset by a current tax expense of $1,481,000, resulting in a net
income tax benefit of $2,751,000 or $0.11 per diluted share. In Fiscal 1999, net
income included a provision for income taxes of $893,000, or $0.04 per diluted
share.
Fiscal 1999 Compared to Fiscal 1998
Revenues
Revenues for Fiscal 1999 and the Fiscal Year ended June 30, 1998, ("Fiscal
1998") were approximately $118,418,000 and $102,663,000, respectively, an
increase of approximately $15,755,000 or 15.3%. Revenues from OEM and retail
sales in Fiscal 1999 increased by approximately $13,542,000 or 19.9%, and
$2,213,000 or 6.4% to $81,590,000 and $36,828,000, respectively, in Fiscal 1999
from $68,048,000 and $34,615,000, respectively, in Fiscal 1998. The increases
in OEM and retail and distribution sales were attributable to increased
purchases by existing OEM and retail and distribution customers together with
purchases by new OEM and retail and distribution customers.
Sales of Concord Asia in Fiscal 1999 and Fiscal 1998, including FOB Hong
Kong sales to Concord Americas and Concord Europe customers for Fiscal 1999 and
Fiscal 1998 of $19,542,000 and $17,109,000, respectively, were approximately
$101,327,000 and $85,896,000, respectively, an increase of approximately
$15,431,000, or 18.0%. The increase was due primarily to the shipments of the
new single use instant and the new reloadable manual instant cameras and the
growth of shipments to OEM and FOB customers, net of approximately $9,492,000
of non-recurring sales in Fiscal 1998 by Concord Asia.
Sales of Concord Americas for Fiscal 1999 and Fiscal 1998, including FOB
Hong Kong sales to customers of Concord Americas, were approximately
$20,160,000 and $19,132,000, respectively, an increase of $1,028,000, or 5.4%.
The increase was primarily attributable to the successful implementation of new
programs with new and existing customers and the successful sell through of
certain new products.
Sales of Concord Europe for Fiscal 1999 and Fiscal 1998, including FOB
Hong Kong sales to customers of Concord Europe, were approximately $16,473,000
and $14,744,000, respectively, an increase of approximately $1,729,000, or
11.7%. The increase was primarily attributable to the successful implementation
of new programs with new and existing customers and the successful sell through
of certain new products.
Gross Profit
Gross profit for Fiscal 1999 and Fiscal 1998 was approximately $31,754,000
and $27,892,000, respectively, an increase of approximately $3,862,000, or
13.8%. Gross profit, expressed as a percentage of sales, decreased from 27.2%
in Fiscal 1998 to 26.8% in Fiscal 1999. This decrease was primarily a result of
costs associated with the production ramp up of new products, increases in
licensing costs, royalty expenses, and product development costs associated
with new products. Product development costs for Fiscal 1999 and Fiscal 1998
were approximately $4,815,000 and $3,963,000, respectively, an increase of
$852,000, or 21.5%.
Operating Expenses
Operating expenses, consisting of selling, general and administrative and
interest expense, increased by approximately $1,701,000, or 7.8% to $23,593,000
in Fiscal 1999 from $21,892,000 in Fiscal 1998. As a percentage of sales,
operating expenses decreased to 19.9% in Fiscal 1999 from 21.3% in Fiscal 1998.
14
Selling expenses decreased by $1,312,000, or 14.2% to $7,922,000 in Fiscal
1999 from $9,234,000 in Fiscal 1998. The decrease was primarily attributable to
decreases in freight costs, royalty expenses, commission expenses and promotion
allowances, net of increases in compensation and employee benefits. As a
percentage of sales, selling expenses decreased to 6.7% in Fiscal 1999 from
9.0% in Fiscal 1998.
General and administrative expenses increased by $1,227,000, or 11.2% to
$12,216,000 in Fiscal 1999 from $10,989,000 in Fiscal 1998. The increase is
primarily attributable to increases in professional fees and expenses related
to new OEM customer agreements, and increases in compensation and employee
benefits. As a percentage of sales, general and administrative expenses
decreased to 10.3% in Fiscal 1999 from 10.7% in Fiscal 1998.
Interest expense increased by $1,787,000, or 107.1% to $3,455,000 in
Fiscal 1999 from $1,668,000 in Fiscal 1998. As a percentage of sales, interest
expense increased to 2.9% in Fiscal 1999 from 1.6 % in Fiscal 1998. Such
increase was primarily a result of an increase in average debt outstanding
during Fiscal 1999.
Other Income, Net
Other income, net decreased to $441,000 in Fiscal 1999 from $517,000 in
Fiscal 1998. The decrease was primarily attributed to a loss in Fiscal 1999 of
$432,000 associated with foreign exchange transactions compared to income in
Fiscal 1998 of $371,000, partially offset by higher interest income in Fiscal
1999 of $1,099,000 compared to $433,000 in Fiscal 1998.
Income Taxes
The income tax provision for Fiscal 1999 of approximately $893,000 was
comprised of a current U.S. tax benefit of approximately ($53,000), a current
foreign provision of approximately $786,000 and a deferred provision of
approximately $160,000. The income tax provision for Fiscal 1998 of
approximately $504,000 was comprised of a current U.S. tax provision of
approximately $69,000, a current foreign provision of approximately $318,000
and a deferred provision of approximately $117,000. The Company's provision for
income taxes for Fiscal 1999 and Fiscal 1998 was primarily related to the
earnings of Concord Asia and Concord Americas, net of benefits relating to
operating loss carryforwards and overpayments/refunds of Concord Europe.
Net Income
As a result of the matters described above, the Company had net income of
approximately $7,709,000 or $0.33 per diluted share in Fiscal 1999 as compared
to net income of $6,013,000 or $0.26 per diluted share in Fiscal 1998, an
increase in net income of approximately $1,696,000, or 28.2%.
LIQUIDITY AND CAPITAL RESOURCES
At July 1, 2000, the Company had working capital of $52,600,000 compared
to $37,447,000 at July 3, 1999. Cash provided by operations was approximately
$9,661,000, $17,519,000 and $1,146,000 for Fiscal 2000, Fiscal 1999 and Fiscal
1998, respectively. The changes in cash provided by operating activities for
the respective Fiscal Years was primarily attributable to changes in accounts
receivable and inventories.
Capital expenditures for Fiscal 2000, Fiscal 1999 and Fiscal 1998 were
approximately $7,792,000, $6,166,000, and $4,459,000 respectively, and related
primarily to plant and equipment purchases for the manufacturing facility
located in the PRC.
Cash used in financing activities was $8,185,000 for Fiscal 2000 compared
to cash provided by financing activities of $12,234,000 in Fiscal 1999, and
$5,135,000 in Fiscal 1998. In Fiscal 2000, the Company was able to refinance
certain of its short-term debt and repay certain other high cost obligations
including certain capital 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.
15
Senior Notes Payable. On July 30, 1998, the Company consummated a private
placement of $15,000,000 of senior notes. The notes bear interest at 11.0%, and
mature on July 15, 2005. Interest payments are due quarterly. The indenture
governing the notes contains certain restrictive covenants relating to, among
other things, incurrence of additional indebtedness and dividend and other
payment restrictions affecting the Company and its subsidiaries.
Hong Kong Credit Facilities. In Fiscal 1999, Concord HK utilized a
$10,000,000 Non-Notification Factoring with Recourse Facility ("Factoring
Facility") that was guaranteed by the Company, was secured by certain accounts
receivables of Concord HK's operations and bore interest at 1.5% above the
prime lending rate. During the last quarter of Fiscal 1999, $2,000,000 of the
factoring facility was converted into two $1,000,000 equipment leasing
facilities with terms of three and four years each. Availability under the
factoring facility was subject to advance formulas based on Eligible Accounts
Receivable with no minimum borrowings. At July 3, 1999, approximately
$6,585,000, and $1,050,000 was outstanding and classified as short-term debt
and capital lease obligations, respectively. Availability under the Factoring
Facility amounted to $1,415,000 at July 3, 1999.
Additionally, in April 1999, Concord HK entered into a credit facility
(the "Concord HK Facility") with a lender that provided Concord HK with up to
$4,200,000 of financing as follows: letters of credit of up to $2,900,000, and
packing loans of up to $1,300,000. At July 3, 1999, approximately $1,504,000 in
borrowings was utilized and outstanding under the facility. The facility was
payable on demand, and bore interest at 2% above the prime lending rate which
was 8.5% at July 1, 1999. The Company guaranteed all amounts outstanding under
the facility.
During the second quarter of Fiscal 2000, Concord HK consummated a
$26,200,000 credit facility (the "HK Facility") that is guaranteed by the
Company, is secured by certain accounts receivables of Concord HK's operations
and bears interest at 0.5% above the prime lending rate which was 9.5% at July
1, 2000. The HK Facility is comprised of 1) a $5,600,000 Import Facility, 2) a
$2,600,000 Packing Credit and Export Facility, and 3) an $18,000,000 Accounts
Receivable Financing Facility. Availability under the Accounts Receivable
Financing Facility is subject to advance formulas based on Eligible Accounts
Receivable with no minimum borrowings. The Company utilized the HK Facility to
replace both the Factoring Facility and the Concord HK Facility. At July 1,
2000, $1,495,000 was outstanding under the HK Facility and classified as
short-term debt.
United Kingdom Credit Facility. In November 1999, Goldline (Europe)
Limited ("Goldline"), a United Kingdom subsidiary of the Company, became
indebted under a credit facility (the "UK Facility") in the United Kingdom that
is secured by substantially all of the assets of Goldline. The UK Facility
bears interest at 2.0% above the UK prime lending rate which was 7.2% at July
1, 2000, is principally utilized for working capital needs and allows
borrowings of up to approximately $1,000,000. At July 1, 2000, approximately
$695,000 was outstanding under the UK Facility and classified as short-term
debt.
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"), which was 6.2% at July 1, 2000. No amounts were
outstanding under the US Facilities at July 1, 2000.
The weighted average interest rate on the Company's short-term borrowings
was approximately 10.6%, 11.7% and 11.2% for Fiscal 2000, Fiscal 1999 and
Fiscal 1998, respectively.
Stock Split. The Company announced a two-for-one stock split of its common
stock effected through a stock dividend to shareholders of record on March 27,
2000 and payable on April 14, 2000. Accordingly, share and per-share data for
all periods presented have been restated to reflect the stock split.
Common Stock Repurchase Program. The Company also purchased shares of its
common stock in Fiscal 2000 and Fiscal 1999, for $759,000 and $2,926,000,
respectively, as part of a Board of Directors ("Board") approved Common Stock
repurchase program. The Board authorized the Company to spend approximately
$10,500,000, of which approximately $6,700,000 is available. The Company has
purchased a total of 1,543,000 shares of its common stock in open market
transactions.
16
Future Cash Commitments. Management believes that anticipated cash flow
from operations, amounts available under its credit facilities and the proceeds
from future securities offerings will be sufficient to fund its operating cash
needs for the foreseeable future.
The Company is evaluating various growth opportunities which could require
significant funding commitments. We have from time to time held, and continue
to hold, discussions and negotiations with (i) companies that represent
potential acquisition or investment opportunities, (ii) potential strategic and
financial investors who have expressed an interest in making an investment in
or acquiring the Company, (iii) potential joint venture partners looking toward
formation of strategic alliances that would broaden the Company's product base
or enable the Company to enter new lines of business and (iv) potential new and
existing OEM customers where the design, development and production of new
products including certain new technologies would enable the Company to expand
its existing business, and enter new markets outside its traditional business
including new ventures focusing on wireless connectivity and other new
communication technologies. There can be no assurance any definitive agreement
will be reached regarding any of the foregoing, nor does management believe
such agreements are necessary for successful implementation of the Company's
strategic plans.
RISK FACTORS
Investing in our common stock involves a high degree of risk. You should
carefully consider the risks and uncertainties described below before you
purchase any of our common stock. These risks and uncertainties are not the
only ones we face. Unknown additional risks and uncertainties, or ones that we
currently consider immaterial, may also impair our business operations. If any
of these risks or uncertainties actually occur, our business, financial
condition or results of operations could be materially adversely affected. In
this event, the trading price of our common stock could decline, and you could
lose all or part of your investment.
Our operations are subject to control by the People's Republic of China (PRC)
and various 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 agencies currently provide us with
approximately 6,500 workers. We are responsible for their wages, food and
housing. The termination or material modification of these agreements would
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.
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.
17
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. Pending approval by
the Senate, a bill recently adopted by the House of Representatives would
establish 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.
Termination of our non-exclusive license to use certain Fuji intellectual
property would have a material adverse effect on our single use camera business
if Fuji's patents were found to be valid and infringed by our single use
products.
On December 30, 1997, we commenced an action against Fuji Photo Film Co.
Ltd. ("Fuji") in the United States District Court for the Southern District of
New York. The action seeks to enforce the terms of a settlement agreement
between us and Fuji and to restrain Fuji from terminating the settlement
agreement. Under the terms of the settlement agreement, we were granted a
worldwide (subject to certain geographic limitations), non-exclusive license to
use certain Fuji intellectual property in connection with the manufacture and
sale of single use cameras. Termination of the license would have a material
adverse effect on our single use camera business if Fuji patents were found to
be valid and infringed by our single use products. On January 9, 1998, the
Court granted our request for an order restraining Fuji from terminating the
settlement agreement. Pending a final judicial determination of the dispute,
the restraining order will continue in effect as long as we refrain from making
any further shipments under the purchase order that gave rise to the dispute.
See "Legal Proceedings."
We are dependent on certain large OEM customers.
Our three largest OEM customers, Agfa, Kodak and Polaroid, represented
approximately 59.2% of our revenue during Fiscal 2000. The loss of any of these
OEM customers could have a material adverse impact on our revenues and profits.
A reversal of the International Trade Commission ban on importation of
re-loaded single use cameras could adversely affect our business.
In June 1999, the International Trade Commission banned the unlicensed
importation of new and reloaded single use cameras due to the infringement of
such imports on existing United States patents held by Fuji. This decision has
been appealed to the Court of Appeals for the District of Columbia. If the
decision is 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.
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, President and Chief Executive Officer. 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 than our existing camera business. Manufacturing delays, including
component procurement delays which may be outside our control, could adversely
impact our business, results of operations and financial condition.
18
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 are 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, as well as 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.
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.
Many stocks are trading at or near historical highs and reflect price to
earnings ratios substantially above historical levels that may not be
sustained. 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.
19
Future sales of our common stock could adversely affect the price of the common
stock.
Future sales of our common stock could depress the market price of the
shares. Future sales of these shares or the market's perception that any sales
could occur may cause the market price of the common stock to fall. Such sales
might also make it more difficult for us to raise funds through future equity
offerings or to use equity as consideration for future acquisitions.
We may not be able to identify and integrate future acquisitions.
We intend to pursue strategic acquisitions 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.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
We, as a result of our global operating and financial activities, are
exposed to changes in interest rates and foreign currency exchange rates which
may adversely affect our results of operations and financial position. In
seeking to minimize the risks and/or costs associated with such activities, we
manage exposures to changes in interest rates and foreign currency exchange
rates through our regular operating and financing activities. Our hedging
activities were immaterial and as of July 1, 2000 there were no forward
exchange contracts outstanding. We continue to analyze the benefits and costs
associated with hedging against foreign currency fluctuations. Our exposure to
changes in interest rates results from our investing and borrowing activities
used to meet our liquidity needs. Long-term debt is generally used to finance
long-term investments, while short-term debt is used to meet working capital
requirements. Derivative instruments are not presently used to adjust our
interest rate risk profile. We do not use financial instruments for trading or
other speculative purposes, nor do we use leveraged financial instruments.
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.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosures.
None.
20
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 July
1, 2000, are as follows:
Name Age Position
- --------------------------------- ----- --------------------------------------------------
Ira B. Lampert(3)(4) ............ 55 Chairman, President and Chief Executive Officer
Brian F. King ................... 47 Senior Vice President and Secretary
Harlan I. Press ................. 36 Vice President, Treasurer and Assistant Secretary
Gerald J. Angeli ................ 47 Vice President of OEM Product Supply
Keith L. Lampert ................ 30 Vice President of the Company and Managing
Director of Concord HK
Urs W. Stampfli ................. 48 Vice President and Director of Global Sales and
Marketing
Eli Arenberg .................... 72 Director
Ronald S. Cooper(1)(2) .......... 61 Director
Morris H. Gindi(1)(2) ........... 55 Director
Joel L. Gold(1)(2)(3) ........... 58 Director
J. David Hakman(4) .............. 58 Director
Kent M. Klineman(3)(4) .......... 68 Director
William J. Lloyd ................ 60 Director
- ------------
(1) Member of Audit Committee.
(2) Member of Compensation and Stock Option Committee.
(3) Member of Nominating Committee.
(4) Member of Executive 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 Brotherhood
Republic, a nonprofit organization for underprivileged children.
Brian F. King has been Senior Vice President of the Company since August
25, 1998. In addition, Mr. King has served as Secretary of the Company since
August 1996 and as Managing Director of Concord HK from August 1996 through
April 2000. Prior to that, Mr. King had been the Company's Vice President of
Corporate and Strategic Development since June 1996. Before joining the
Company, Mr. King was Managing General Partner of Cripple Creek Associates, a
partnership that built and operated two casinos in Cripple Creek, Colorado,
from June 1991 through February 1996.
Harlan I. Press has been Vice President, Treasurer and Assistant Secretary
of the Company since April 2000. Mr. Press has also served as the Corporate
Controller and Assistant Secretary of the Company from October 1996 through
April 2000 and as Chief Accounting Officer from November 1994 to the present.
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 has been Vice President, OEM Product Supply, of the
Company since April 2000. From July 1997 to April 2000, Mr. Angeli was Vice
President, Global Manufacturing and Products Supply for NCR
21
Corporation's Systemedia Group, where he was responsible for manufacturing,
customer service, distribution and logistics. For 20 years prior thereto, Mr.
Angeli was employed by Kodak 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 Vice President
of the Company since August 25, 1998 and is also Managing Director of Concord
HK. Among other things, Mr. Lampert is responsible for operations in the PRC
within the Company. 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.
Eli Arenberg has been a director of the Company since 1988. From 1984
through February 1992, Mr. Arenberg held various positions in the Company,
including Senior Vice President of Sales. Following his retirement from
full-time employment with the Company, Mr. Arenberg has been a consultant to
the Company since July 1994.
Ronald S. Cooper has been a director of the Company since January 20,
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.
Joel L. Gold has been a director of the Company since 1991. Mr. Gold has
been Executive Vice President of Berry Shino Securities since January 2000. He
has been employed as an investment banker at other investment banks: J.W.
Barclay & Co. Inc. from September 1999 to December 1999, Solid ISG Capital
Markets LLC from January 1999 to September 1999, Inter Bank Capital Group LLC
from October 1997 to January 1999, L.T. Lawrence & Co., Inc. from March 1996
through September 1997, Fector Detwiler from April 1995 through March 1996, and
Furman Selz Incorporated from January 1992 through April 1995. Mr. Gold is also
a director of PMCC Financial Corp. and Sterling Vision.
J. David Hakman has been a director of the Company since 1993. Mr. Hakman
owns Hakman Capital Corp., 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 also a director of Hanover Direct, Inc., a direct
marketing business.
Kent M. Klineman, an attorney and private investor, has been a director of
the Company since 1993. In addition to serving as a director of several closely
held companies, Mr. Klineman is Chairman of Business Alliance Capital Corp. a
closely held asset-based finance company, and a Manager of 1270 Capital LLC,
the manager of UV Equities, LLC, a closely held investment fund.
William J. Lloyd has been a director of the Company since May 2, 2000. Mr.
Lloyd currently serves as co-chief executive of a new Hewlett Packard/Eastman
Kodak joint venture formed to develop photo finishing solutions to offer retail
customers a wide range of digital-imaging capabilities for both traditional
photographic film and digital files. Previously, Mr. Lloyd held various
management positions at Hewlett Packard from 1969 to 2000, most recently as
Vice President, Chief Technology Officer for its Digital Media Solutions and
Personal Appliances and Services.
Section 16 Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act") requires our directors, executive officers and ten percent
(10%) shareholders ("Reporting Persons") to file initial reports of ownership
and reports of changes in ownership of our common stock and any other equity
securities with the Securities and Exchange Commission ("SEC"). Reporting
Persons are required to furnish us with copies of all
22
Section 16(a) reports they file. Based on a review of the copies of the reports
furnished to us and written representations from the Reporting Persons that no
other reports were required, with respect to Fiscal 2000 we believe that: (i)
the Reporting Persons complied with all Section 16(a) filing requirements
applicable to them, except that Mr. Gindi filed a late Form 4 in June 2000
relating to an option exercise, and Mr. Kruttschnitt filed a late Form 4 in
April 2000 relating to a sale of shares on the open market; and (ii) there were
no failures to file a report required under Section 16(a) by any of the
Reporting Persons.
Item 11. Executive Compensation
SUMMARY COMPENSATION TABLE
Long-Term
Compensation
Awards
Annual Compensation -------------
--------------------------------------------- Shares
Other Annual Underlying All Other
Fiscal Salary Bonus* Compensation Options** Compensation
Name and Principal Position Year ($) ($) ($) (#) ($)
- ----------------------------- -------- ----------- ----------- ----------------- ------------- -----------------
Ira B. Lampert 2000 $704,167 $400,000 $210,107(1) 350,672 $482,371(9)
Chairman, Chief Executive 1999 616,668 350,000 148,595(2) -- 408,951(9)
Officer and President 1998 541,667 -- 210,383(3) -- 14,973(10)
Brian F. King 2000 327,147 175,000 18,000(4) 169,680 123,148(11)
Senior Vice President 1999 322,460 150,000 48,000(5) -- 105,783(11)
1998 231,738 -- 78,000(6) -- 1,721(10)
Keith L. Lampert 2000 204,601 100,000 25,000(7) 101,808 83,520(12)
Vice President; Managing 1999 167,052 75,000 25,000(7) -- 72,037(12)
Director of Concord HK 1998 139,849 -- 25,000(7) -- 535(10)
Urs W. Stampfli 2000 192,500 45,000 12,000(8) 24,886 7,245(10)
Vice President and 1999 175,000 5,000 12,000(8) -- 7,245(10)
Director of Global Sales 1998 23,275 -- -- 90,000 --
and Marketing
Harlan I. Press 2000 155,000 50,000 6,000(8) 37,330 6,515(13)
Vice President and 1999 140,178 40,000 4,833(8) 40,000 790(10)
Treasurer 1998 115,000 -- -- 30,000 640(10)
(*) 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.
(**) The number of shares underlying all option grants have been adjusted to
reflect a two-for-one stock split effective on April 14, 2000 to
shareholders of record on March 27, 2000.
(1) Includes $35,911, $48,000 and $108,055 paid for auto lease and costs,
partial housing costs and reimbursement of taxes, respectively.
(2) Represents $35,595, $48,000 and $65,000 paid for auto lease and costs,
partial housing costs and reimbursement of taxes, respectively.
(3) Includes $30,939, $62,594 and $108,300 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 for auto and overseas allowances paid,
respectively.
23
(6) Represents $18,000 and $60,000 for auto and overseas allowances paid,
respectively.
(7) Represents overseas allowances paid.
(8) Represents auto allowances paid.
(9) Includes indebtedness forgiven by the Company as part of a conditional
release program (see "Certain Relationships and Related Transactions"
below) in the amounts of $389,827 for Fiscal 1999 and $452,371 for Fiscal
2000. The remainder represents payments by the Company for insurance
premiums.
(10) Represents insurance premiums paid by the Company.
(11) Includes indebtedness forgiven by the Company as part of a conditional
release program (see "Certain Relationships and Related Transactions"
below) in the amounts of $103,954 for Fiscal 1999 and $120,632 for Fiscal
2000. The remainder represents payments by the Company for insurance
premiums.
(12) Includes indebtedness forgiven by the Company as part of a conditional
release program (see "Certain Relationships and Related Transactions"
below) in the amounts of $71,468 for Fiscal 1999 and $82,935 for Fiscal
2000. The remainder represents payments by the Company for insurance
premiums.
(13) Represents $5,615 of indebtedness forgiven by the Company as part of a
conditional release program (see "Certain Relationships and Related
Transactions" below) and $900 paid by the Company for insurance premiums.
Stock Options
The following table sets forth information concerning stock option grants
made during Fiscal 2000 to the executive officers named in the "Summary
Compensation Table."
Stock Option Grants in Fiscal 2000
% of Total
Number of Options Exercise
Shares(1) Granted to Price(1)
Underlying Employees Per
Options in Share
Name Granted Fiscal 2000 ($)
- ------------------ ---------------- ------------- ------------
Ira B. Lampert 350,672(2) 25.8 22.1875
Brian F. King 169,680(2) 12.5 22.1875
Keith L. Lampert 101,808(2) 7.5 22.1875
Urs W. Stampfli 24,886(2) 1.8 22.1875
Harlan I. Press 37,330(2) 2.7 22.1875
Harlan I. Press 4,000(3) 0.3 0.9063
Value at Potential Realizable
Grant Value at Assumed
Date Annual Rates of Stock
Market Market Price Appreciation for
Price(1) on Price Option Term
Grant ---------- ------------------------
Date Expiration 0% 5% 10%
Name ($) Date ($) ($) ($)
- ------------------ ------------- ------------ ---------- ----------- -----------
Ira B. Lampert 22.1875 04/23/2010 -- 4,891,874 12,399,762
Brian F. King 22.1875 04/23/2010 -- 2,367,036 5,999,885
Keith L. Lampert 22.1875 04/23/2010 -- 1,420,222 3,599,931
Urs W. Stampfli 22.1875 04/23/2010 -- 347,160 879,969
Harlan I. Press 22.1875 04/23/2010 -- 520,754 1,319,989
Harlan I. Press 11.7190 12/21/2006 $43,251 55,800 141,440
- ------------
(1) The numbers of shares and prices have been adjusted to reflect a
two-for-one stock split effective on April 14, 2000 to shareholders of
record on March 27, 2000.
(2) These stock options vested immediately as to one-third of the underlying
shares, with the balance vesting in three equal annual installments
commencing January 1, 2001.
(3) This stock option vested in 1998 under the terms of its original grant to a
former officer of the Company. Under the Management Equity Provisions of
the Company's Incentive Plan, the former officer's option was cancelled
upon his leaving the Company and it was re-issued to Mr. Press. See
"Certain Relationships and Related Transactions" below.
24
The following table sets forth information concerning stock option
exercises during Fiscal 2000 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 $20.875 for the
common stock on June 30, 2000.
Aggregated Stock Option Exercises in Fiscal 2000
and Fiscal Year-End Option Values
Number of Shares*
Underlying Value of Unexercised
Unexercised Options In-the-Money
Shares* at FY End (#) Options at FY End ($)
Acquired on Value ------------------------------ -----------------------------
Name Exercise (#) Realized ($) Exercisable Unexercisable Exercisable Unexercisable
- -------------------------- -------------- -------------- ------------- --------------- ------------- --------------
Ira B. Lampert ........... -- -- 1,526,890 233,782 $27,902,813 --
Brian F. King ............ -- -- 443,226 113,120 7,625,362 --
Keith L. Lampert ......... -- -- 315,936 75,872 5,574,765 $159,720
Urs W. Stampfli .......... 30,000 $350,000 38,295 46,591 543,750 543,750
Harlan I. Press .......... 44,000 598,688 82,443 54,887 1,334,843 577,500
- ------------
* The numbers of shares have been adjusted to reflect a two-for-one stock split
effective on April 14, 2000 to shareholders of record on March 27, 2000.
Executive Employment Contracts, Termination of Employment and Change in Control
Arrangements
Pursuant to the employment agreement between the Company and Ira B.
Lampert dated as of May 1, 1997 and amended as of January 1, 1999 (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 $650,000 (being amended to reflect an increase
to $800,000 effective as of January 1, 2000), 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 (as amended, the "Lampert SERP") for the benefit of
Mr. Lampert and causes $18,333 (being amended to reflect an increase to $33,333
effective as of January 1, 2000) to be credited to this account each month
("Monthly Credit") for the benefit of Mr. Lampert. The balance in the Lampert
SERP account will always be 100% vested and not subject to forfeiture. Each
time the Company credits a Monthly Credit to the Lampert SERP account, the
Company will simultaneously contribute 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 establishment of the
Lampert SERP.
The Terms of Employment between Urs Stampfli and the Company, effective as
of May 15, 1998, amended effective July 1, 1999, provide for an annual salary
of $192,500 (being amended to reflect an increase to $210,000 effective as of
January 1, 2000). These terms expire after three years, unless renewed by
mutual agreement of the parties, and may be terminated by either party on three
months' notice. They also prohibit Mr. Stampfli 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 a change of
control of the Company. The Company
25
simultaneously approved a one-time grant of deferred compensation to Ira B.
Lampert in the amount of $1,549,999 with the same vesting as under the
Executive SERPs. The Lampert SERP is being amended to include appropriate terms
to govern the one-time grant of deferred compensation to Mr. Lampert.
Directors Compensation
Each non-employee member of the Board of Directors receives: (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 serves ($3,500 for serving as Chairman); and (iii)
$1,000 for each Board or committee meeting attended.
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.
On April 24, 2000, the Company also made a one-time option grant to each
non-employee director who had served on the Board for the past five years,
namely Messrs. Arenberg, Gindi, Gold, Hakman and Klineman. The one-time grant
provided each such director with a fully vested option to purchase up to 25,000
shares at an exercise price of $22.1875 per share, which was the closing price
of the common stock on the date of the grant.
Item 12. Beneficial Ownership of Certain Beneficial Owners and Management
The following table sets forth certain information as of July 15, 2000,
with respect to: (i) those persons or groups known to the Company to
beneficially own more than five percent (5%) of the common stock; (ii) each
director; (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 and Address of Beneficial Owner Beneficial Ownership(1) of Class(1)
- --------------------------------------------------------- ------------------------- ------------
(i) Beneficial Owners of More than 5% of the Common Stock
Theodore H. Kruttschnitt .............................. 2,327,600 10.4%
1730 South El Camino Real, Suite 400
San Mateo, California 94402
"MEP Group" of Company Officers or
Employees as described in (2) below .................. 3,013,295(2) 12.2%
Concord Camera Corp.
4000 Hollywood Boulevard
Presidential Circle - Suite 650N
Hollywood, Florida 33021
(ii) Directors
Ira B. Lampert ........................................ 1,919,290(2)(3) 8.1%
Concord Camera Corp.
4000 Hollywood Boulevard
Presidential Circle - Suite 650N
Hollywood, Florida 33021
Eli Arenberg .......................................... 127,600(4) *
9578 Harbour Lake Circle
Boynton Beach, Florida 33437
26
Amount and Nature of Percent
Name and Address of Beneficial Owner Beneficial Ownership(1) of Class(1)
- -------------------------------------------------------------------------- ------------------------- ------------
Ronald S. Cooper ....................................................... 26,000(5) *
LARC Strategic Concepts LLC
115 Eileen Way, Suite 103
Syosset, New York 11791
Morris Gindi ........................................................... 101,500(6) *
Notra Trading Corp., Inc.
One Woodbridge Center
Woodbridge, New Jersey 07095
Joel L. Gold ........................................................... 113,500(7) *
Berry Shino Securities
430 Park Avenue, Suite 610
New York, New York 10022
J. David Hakman ........................................................ 315,500(8) 1.4%
Hakman Capital Corporation
1350 Bayshore Highway - Suite 300
Burlingame, California 94010
Kent M. Klineman ....................................................... 92,500(9) *
Klineman Assoc., Inc.
1270 Avenue of the Americas
New York, New York 10020
William J. Lloyd ....................................................... 13,000(10) *
Hewlett Packard/Kodak JV
16650 W. Bernardo Drive
San Diego, California 92127
(iii) Named Executive Officers
Brian F. King .......................................................... 443,226(2)(11) 2.0%
Concord Camera Corp.
4000 Hollywood Boulevard
Presidential Circle - Suite 650N
Hollywood, Florida 33021
Keith L. Lampert ....................................................... 375,936(2)(12) 1.7%
Concord Camera Corp.
4000 Hollywood Boulevard
Presidential Circle - Suite 650N
Hollywood, Florida 33021
Harlan I. Press ........................................................ 140,443(2)(13) *
Concord Camera Corp.
4000 Hollywood Boulevard
Presidential Circle - Suite 650N
Hollywood, Florida 33021
Urs W. Stampfli ........................................................ 48,295(14) *
Concord Camera Corp.
4000 Hollywood Boulevard
Presidential Circle - Suite 650N
Hollywood, Florida 33021
(iv) All executive officers and directors as a group (13 persons) ........ 3,852,390 15.2%
27
- ------------
* Indicates less than one percent (1%).
(1) For purposes of this table, beneficial ownership was determined in
accordance with Rule 13d-3 under the Exchange Act based upon information
furnished by the persons listed or contained in filings made by them with
the SEC; 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 such Act. As of July 15, 2000, the Company had
22,283,208 shares of common stock issued and outstanding. All shares were
owned directly with sole voting and investment power unless otherwise
indicated.
(2) As of July 15, 2000, 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, 508,800 shares and 2,504,495 options to purchase
common stock, or 12.2% of 24,787,703 (the number of shares outstanding on
that date plus the number of shares that would have been outstanding if
all options exercisable within 60 days of July 15, 2000 were exercised).
Of that total, 316,400 shares and 780,666 options 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
192,400 shares and 1,723,829 options were purchased or held outside the
MEP. See "Certain Relationships and Related Transactions" below.
(3) Represents 1,526,890 shares that may be acquired pursuant to stock options
exercisable within 60 days of July 15, 2000, 367,400 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 (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 99,000 shares that may be acquired pursuant to stock options
exercisable within 60 days of July 15, 2000 and 15,000 shares held by his
wife.
(5) Includes 13,000 shares that may be acquired pursuant to stock options
exercisable within 60 days of July 15, 2000.
(6) Includes 38,000 shares that may be acquired pursuant to stock options
exercisable within 60 days of July 15, 2000, 1,000 shares held by his son,
and 25,000 shares held by the Notra Trading Inc. Profit Sharing Plan &
Trust, a retirement plan of which Mr. Gindi is a co-trustee and
participant.
(7) Includes 90,500 shares that may be acquired pursuant to stock options
exercisable within 60 days of July 15, 2000 and 21,000 shares held by his
wife.
(8) Represents: (i) 38,000 shares that may be acquired pursuant to stock
options, and 113,000 shares that may be acquired pursuant to warrants,
both of which are exercisable within 60 days of July 15, 2000; 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 Corp.
Profit Sharing Plan and Trust, and 50,000 shares held by a corporation
controlled by Mr. Hakman.
(9) Includes 90,500 shares that may be acquired pursuant to stock options
exercisable within 60 days of July 15, 2000.
(10) Represents 13,000 shares that may be acquired pursuant to stock options
exercisable within 60 days of July 15, 2000.
(11) Represents 443,226 shares that may be acquired pursuant to stock options
exercisable within 60 days of July 15, 2000. Since Mr. King is part of the
MEP Group, the shares beneficially owned by him are included in (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.
28
(12) Represents 315,936 shares that may be acquired pursuant to stock options
exercisable within 60 days of July 15, 2000 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 (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.
(13) Represents 92,443 shares that may be acquired pursuant to stock options
exercisable within 60 days of July 15, 2000 and 48,000 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 (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.
(14) Includes 38,295 shares that may be acquired pursuant to stock options
exercisable within 60 days of July 15, 2000.
Item 13. Certain Relationships and Related Transactions
Consulting Arrangements with Directors
Following Eli Arenberg's retirement from the Company in 1992, he began
consulting the Company in 1994. ELA Enterprises, Inc., a company owned by Eli
Arenberg, a director of the Company, is paid for the consulting services Mr.
Arenberg provides to the Company. The Company paid approximately $27,000,
$49,000 and $56,000 for such consulting services and related expenses during
Fiscal 2000, Fiscal 1999 and Fiscal 1998, respectively.
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 amended and supplemented in 1998 and 1999 (the
"Hakman Agreement"). Pursuant to the Hakman Agreement, the Company granted
warrants 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. As of July 15,
2000, such warrants were vested and exercisable as to 113,000 shares of common
stock.
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 paid 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 mature five years from the date of purchase and 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.
29
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.
Pursuant to the Company's Management Equity Provisions, so long as a
person remains a member of the management group, such person is required to own
shares of common stock in an amount not less than 50% of such person's shares
issued pursuant to the Management Equity Provisions plus shares issuable upon
the exercise of options thereunder.
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 would 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.
30
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 to be Shares to be
Releasee Release Dates Forgiven 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.
Indebtedness of Management
Ira B. Lampert, Brian King and Keith Lampert are the only executive
officers who owed more than $60,000 to the Company under the Notes at any time
since the beginning of Fiscal 2000. The largest amount of indebtedness that was
outstanding at any time since the beginning of Fiscal 2000 under the Note of
each was as follows: (i) Ira B. Lampert - $1,214,650; (ii) Brian King -
$328,699; and (iii) Keith Lampert - $223,181. As stated above, the amounts owed
to the Company by these executive officers have been repaid in full.
31
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 July 1, 2000 and July 3, 1999 .................... F-2
Consolidated Statements of Income for the years ended July 1, 2000,
July 3, 1999, and June 30, 1998 ................................................ F-3
Consolidated Statements of Stockholders' Equity for the years ended July 1, 2000,
July 3, 1999, and June 30, 1998 ................................................ F-4
Consolidated Statements of Cash Flows for the years ended July 1, 2000,
July 3, 1999, and June 30, 1998 ................................................ F-5
Notes to Consolidated Financial Statements ...................................... F-6
(a)(2) Financial Statement Schedule
Schedule II--Valuation and Qualifying Accounts and Reserves ..................... F-23
All other financial statement schedules for which provision is made in the
applicable accounting regulation 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 Filed herewith.
through May 9, 2000
3.2 Restated By-Laws, as amended through April Filed herewith.
24, 2000
4.1 Form of Common Stock Certificate Incorporated by reference to the Company's Reg-
istration Statement on Form S-18 (No. 33-21156),
declared effective July 12, 1988.
4.2 Purchase Agreement, dated July 30, 1998, Incorporated by reference to the Company's
between Dreyfus High Yield Strategies Fund annual report on Form 10-K for the year ended
and the Company June 30, 1998.
4.3 Indenture, dated July 30, 1998, between Bank- Incorporated by reference to the Company's
ers 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 30, 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.
32
No. Description Method of Filing
--- ----------- ----------------
9.1 Amended and Restated Voting Agreement, Filed herewith.
dated February 28, 1997, among the parties sig-
natory thereto, including among others, Ira
Lampert, Brian King and Arthur Zawodny, as
amended on various dates in 1998 to add cer-
tain additional shares of the Company's Com-
mon Stock owned by Ira 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 Incorporated by reference to the Company's
and the Commission effective September 1, annual report on Form 10-K for the year ended
1994 June 30, 1994.
10.2 Pledge Agreement between the Company and Incorporated by reference to the Company's quar-
Benun dated as of March 7, 1994 terly report on Form 10-Q for the quarter ended
March 31, 1994.
10.3 Pledge Agreement between the Company and Incorporated by reference to the Company's quar-
Benun dated as of April 6, 1994 terly report on Form 10-Q for the quarter ended
March 31, 1994.
10.4 Compensation Trade Agreement between Con- Incorporated by reference to the Company's cur-
cord HK and Shenzhen Baoan Contat Camera rent report on Form 8-K dated November 23,
Factory and translation dated November 23, 1993.
1993
10.5 Supplementary Agreement, dated September Incorporated by reference to the Company's Reg-
27, 1985, between Dialbright Company Limited istration Statement on Form S-18 (No. 33-21156),
and Baoan County Foreign Trade Company and declared effective July 12, 1988.
Dialbright Electronic Factory, Henggang,
Baoan County and translations
10.6 Notice Concerning the Approval of Supplemen- Incorporated by reference to the Company's Reg-
tary Agreement dated September 27, 1985 istration Statement on Form S-18 (No. 33-21156),
issued by the Foreign Economic Relations declared effective July 12, 1988.
Office, Baoan County on October 4, 1985 and
translations
10.7 Supplementary Agreement, dated October 30, Incorporated by reference to the Company's Reg-
1985, between Dialbright Company Limited istration Statement on Form S-18 (No. 33-21156),
and Baoan County Foreign Trade Company and declared effective July 12, 1988.
Dialbright Electronic Factory, Henggang,
Baoan County and translations
10.8 Supplementary Agreement, dated July 9, 1986, Incorporated by reference to the Company's Reg-
between Dialbright Company Limited and istration Statement on Form S-18 (No. 33-21156),
Baoan County Foreign Trade Company and declared effective July 12, 1988.
Dialbright Electronic Factory, Henggang,
Baoan County and translations
10.9 Supplementary Agreement, dated August 26, Incorporated by reference to the Company's Reg-
1986, between Dialbright Company Limited istration Statement on Form S-18 (No. 33-21156),
and Baoan County Foreign Trade Company and declared effective July 12, 1988.
Dialbright Electronic Factory, Henggang,
Baoan County and translations
33
No. Description Method of Filing
--- ----------- ----------------
10.10 Agreement for the Provision of Land, Manage- Incorporated by reference to the Company's
ment Services and Labor between Company annual report on Form 10-K for the fiscal year
and Wan Kong Economic Development Corpo- ended June 30, 1989.
ration of Baoan County, dated July 10, 1988
(English Translation with Chinese Original
attached)
10.11 Agreement between Dialbright and Develop- Incorporated by reference to the Company's
ment Corporation, Baoan County, dated Sep- annual report on Form 10-K for the fiscal year
tember 23, 1988 ended June 30, 1989.
10.12 Agreement between Dialbright and Henggang Incorporated by reference to the Company's
Economic Development Corporation, dated annual report on Form 10-K for the fiscal year
September 23, 1988 and translation ended June 30, 1989.
10.13 Construction Works Contract between Concord Incorporated by reference to the Company's
Factory Henggang and Henggang Economic annual report on Form 10-K for the fiscal year
Development Corporation dated February 25, ended June 30, 1989.
1989 and translation
10.14 Contract for Processing between Concord HK Incorporated by reference to the Company's Reg-
and Baoan Henggang Joint Stock Investment istration Statement on Form S-1 (33-59398), filed
Company, Ltd., dated February 15, 1993 and with the SEC on March 11, 1993.
translation
10.15 Contract for the Utilization of Land in Factory Incorporated by reference to the Company's
Construction between Concord HK and Heng- annual report on Form 10-K for the year ended
gang Investment Holdings Limited dated June June 30, 1994.
20, 1994 and translation
10.16 Supplemental Agreement to the Contract for the Incorporated by reference to the Company's
Utilization of Land in Factory Construction annual report on Form 10-K for the year ended
between Concord HK and Henggang Invest- June 30, 1994.
ment Holdings Limited dated June 20, 1994 and
translation
10.17 Hong Kong Credit Facility, dated September 9, Incorporated by reference to the Company's quar-
1999, between the Hong Kong and Shanghai terly report on Form 10-Q for the quarter ended
Banking Corporation Ltd. and the Company January 1, 2000.
10.18 Amended and Restated 1988 Stock Option Plan Incorporated by reference to the Company's Reg-
istration Statement on Form S-1 (33-59398), filed
with the SEC on March 11, 1993.
10.19 Incentive Plan (1993), as amended through Filed herewith.
April 24, 2000
10.20 Amended and Restated Employment Agree- Incorporated by reference to the Company's
ment, dated as of May 1, 1997, between the annual report on Form 10-K for the year ended
Company and Ira B. Lampert June 30, 1997.
10.21 Amendment No. 2, dated as of January 1, 1999, Incorporated by reference to the Company's quar-
to Amended and Restated Employment Agree- terly report on Form 10-Q for the quarter ended
ment dated as of May 1, 1997, between Ira B. January 2, 1999.
Lampert and the Company
34
No. Description Method of Filing
--- ----------- ----------------
10.22 Terms of Employment between Urs W. Stamp- Filed herewith.
fli and the Company, effective as of May 15,
1998, as amended effective July 1, 1999
10.23 Deferral Agreement, dated as of May 1, 1997, Incorporated by reference to the Company's quar-
between Concord Camera Corp. and Ira B. terly report on Form 10-Q for the quarter ended
Lampert January 2, 1999.
10.24 Supplemental Executive Retirement Plan and Incorporated by reference to the Company's quar-
Agreement for Ira B. Lampert terly report on Form 10-Q for the quarter ended
January 2, 1999.
10.25 Amendment to the Supplemental Executive Incorporated by reference to the Company's quar-
Retirement Plan and Agreement for Ira B. terly report on Form 10-Q for the quarter ended
Lampert January 2, 1999.
10.26 Form of Supplemental Executive Retirement Filed herewith.
Plan and Agreement between the Company and
certain of its executive officers
10.27 Lease Agreement, undated between Prologis Incorporated by reference to the Company's quar-
Trust, a Maryland real estate investment trust, terly report on Form 10-Q for the quarter ended
and the Company January 2, 1999.
10.28 Lease Agreement, dated as of August 12, 1998, Incorporated by reference to the Company's quar-
between CarrAmerica Realty Corp. and the terly report on Form 10-Q for the quarter ended
Company January 2, 1999.
10.29 First Amendment, dated October 12, 1999, to Incorporated by reference to the Company's quar-
Lease dated as of August 12, 1998, between terly report on Form 10-Q for the quarter ended
CarrAmerica Realty Corp. and the Company October 2, 1999.
10.30 Second Amendment, dated January 3, 2000, to Filed herewith.
Lease dated as of August 12, 1998, between
CarrAmerica Realty Corp. and the Company
21. Subsidiaries of the Company Filed herewith.
23. Consent of Independent Certified Public Filed herewith.
Accountants
27. Financial Data Schedule Filed herewith.
The Financial Statement Schedules required to be filed pursuant to this Item
14(d) are listed above.
(b) Reports on Form 8-K.
No reports on Form 8-K were filed by the Company during the quarter ended
July 1, 2000.
35
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: August 30, 2000 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 August 30, 2000
- ---------------------- Executive Officer and President
Ira B. Lampert (Principal Executive Officer)
/s/ Harlan I. Press Vice President and Treasurer August 30, 2000
- ---------------------- (Principal Financial Officer and
Harlan I. Press Principal Accounting Officer)
/s/ Eli Arenberg Director August 30, 2000
- ----------------------
Eli Arenberg
/s/ Ronald S. Cooper Director August 30, 2000
- ----------------------
Ronald S. Cooper
/s/ Joel L. Gold Director August 30, 2000
- ----------------------
Joel L. Gold
/s/ Morris H. Gindi Director August 30, 2000
- ----------------------
Morris H. Gindi
/s/ J. David Hakman Director August 30, 2000
- ----------------------
J. David Hakman
/s/ Kent M. Klineman Director August 30, 2000
- ----------------------
Kent M. Klineman
/s/ William J. Lloyd Director August 30, 2000
- ----------------------
William J. Lloyd
36
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 July 1, 2000 and July 3, 1999, and the
related consolidated statements of income, stockholders' equity and cash flows
for each of the three years in the period ended July 1, 2000. 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 July 1, 2000 and July 3, 1999,
and the consolidated results of their operations and their cash flows for each
of the three years in the period ended July 1, 2000, 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
August 3, 2000
F-1
Concord Camera Corp. and Subsidiaries
Consolidated Balance Sheets
July 1, 2000 July 3, 1999
---------------- ---------------
Assets
Current Assets:
Cash and cash equivalents ............................................. $ 24,390,294 $ 30,706,761
Accounts receivable, net .............................................. 33,570,047 18,272,329
Inventories, net ...................................................... 31,603,147 20,620,556
Prepaid expenses and other current assets ............................. 7,374,719 2,404,400
------------- ------------
Total current assets ............................................... 96,938,207 72,004,046
Property, plant and equipment, net ....................................... 22,810,021 18,871,300
Goodwill, net ............................................................ 3,561,770 291,764
Other assets ............................................................. 10,693,442 5,480,342
------------- ------------
Total assets ............................................................. $ 134,003,440 $ 96,647,452
============= ============
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable ...................................................... $ 25,510,625 $ 16,224,538
Accrued expenses ...................................................... 12,788,653 4,985,789
Short-term debt ....................................................... 2,190,263 8,088,901
Current portion of long-term debt ..................................... -- 2,100,000
Current portion of obligations under capital leases ................... 1,252,967 2,073,492
Income taxes payable .................................................. 2,024,157 896,142
Other current liabilities ............................................. 571,706 188,058
------------- ------------
Total current liabilities .......................................... 44,338,371 34,556,920
Deferred income taxes .................................................... -- 792,358
Senior notes ............................................................. 14,891,071 14,850,000
Obligations under capital leases, net of current portion ................. 1,221,128 2,623,080
Other long-term liabilities .............................................. 7,262,903 1,129,569
------------- ------------
Total liabilities ........................................................ 67,713,473 53,951,927
Commitments and contingencies
Stockholders' equity:
Common stock, no par value, 100,000,000 shares authorized;
23,825,734 and 23,259,184 shares issued as of July 1, 2000 and
July 3, 1999, respectively ........................................ 42,145,256 41,117,335
Paid-in capital ....................................................... 2,625,828 1,033,553
Retained earnings ..................................................... 25,685,258 6,086,691
Notes receivable arising from common stock purchase agreements ........ (29,237) (2,163,542)
------------- ------------
70,427,105 46,074,037
Less: treasury stock, at cost, 1,542,526 and 1,351,726 shares as of
July 1, 2000 and July 3, 1999, respectively ....................... (4,137,138) (3,378,512)
------------- ------------
Total stockholders' equity ............................................... 66,289,967 42,695,525
------------- ------------
Total liabilities and stockholders' equity ............................... $ 134,003,440 $ 96,647,452
============= ============
See accompanying notes.
F-2
Concord Camera Corp. and Subsidiaries
Consolidated Statements of Income
Year Ended
------------------------------------------------------
July 1, 2000 July 3, 1999 June 30, 1998
---------------- ---------------- ----------------
Net sales ............................................ $ 173,158,034 $118,418,074 $ 102,663,451
Cost of products sold ................................ 126,147,774 86,664,126 74,771,683
------------- ------------ -------------
Gross profit ......................................... 47,010,260 31,753,948 27,891,768
Selling expenses ..................................... 11,143,074 7,922,140 9,233,781
General and administrative expenses .................. 16,633,210 12,215,870 10,989,461
Interest expense ..................................... 3,268,560 3,454,717 1,668,233
Other income, net .................................... (881,762) (440,872) (516,694)
------------- ------------ -------------
Income before income taxes ........................... 16,847,178 8,602,093 6,516,987
Provision (benefit) for income taxes ................. (2,751,389) 893,187 503,548
------------- ------------ -------------
Net income ........................................... $ 19,598,567 $ 7,708,906 $ 6,013,439
============= ============ =============
Earnings Per Share:
Basic earnings per share ............................ $ 0.89 $ 0.35 $ 0.27
============= ============ =============
Diluted earnings per share .......................... $ 0.81 $ 0.33 $ 0.26
============= ============ =============
Weighted average
common shares basic ............................... 21,989,381 21,980,790 21,877,868
Effect of dilutive securities-stock options ......... 2,324,087 1,177,456 1,230,096
------------- ------------ -------------
Weighted average
common shares and assumed conversions ............. 24,313,468 23,158,246 23,107,964
============= ============ =============
See accompanying notes.
F-3
Concord Camera Corp. and Subsidiaries
Consolidated Statements of Stockholders' Equity
Common Stock
--------------------------------------------------
Issued Shares Stated Value Paid-in Capital
--------------- -------------- -----------------
Balance as of June 30, 1997 .................... 21,888,052 $39,361,893 $ 850,786
Exercise of stock options ...................... 540,850 732,666 --
Interest on notes receivable arising from
common stock purchase agreements .............. -- -- --
Net income ..................................... -- --
---------- ----------- ----------
Balance as of June 30, 1998 .................... 22,428,902 40,094,559 850,786
Exercise of stock options ...................... 830,282 1,022,776 --
Interest on notes receivable arising from
common stock purchase agreements .............. -- -- --
Officers' note forgiven on stock purchases ..... -- -- --
Purchase of treasury stock, at cost ............ -- -- --
Compensation expense on stock options .......... -- -- 182,767
Net income ..................................... -- --
---------- ----------- ----------
Balance as of July 3, 1999 ..................... 23,259,184 41,117,335 1,033,553
Exercise of stock options ...................... 566,550 1,027,921 --
Interest on notes receivable arising from
common stock purchase agreements .............. -- -- --
Officers' note forgiven on stock purchases ..... -- -- --
Officers notes paid on stock purchases ......... -- -- --
Purchase of treasury stock, at cost ............ -- -- --
Stock option issuance related to
non-employees ................................. -- -- 1,592,275
Net income ..................................... -- --
---------- ----------- ----------
Balance as of July 1, 2000 ..................... 23,825,734 $42,145,256 $2,625,828
========== =========== ==========
See accompanying notes.
Retained Notes receivable
Earnings arising from Treasury Stock
(Accumulated common stock ------------------------------
Deficit) purchase agreements Shares Cost
---------------- --------------------- ------------ ----------------
Balance as of June 30, 1997 .................... ($ 7,635,654) ($ 2,622,273) 127,106 ($ 452,919)
Exercise of stock options ...................... -- -- -- --
Interest on notes receivable arising from
common stock purchase agreements .............. -- (143,190) -- --
Net income ..................................... 6,013,439 -- -- --
----------- ----------- ------- -----------
Balance as of June 30, 1998 .................... (1,622,215) (2,765,463) 127,106 (452,919)
Exercise of stock options ...................... -- -- -- --
Interest on notes receivable arising from
common stock purchase agreements .............. -- (142,400) -- --
Officers' notes forgiven on stock purchases .... -- 744,321 -- --
Purchase of treasury stock, at cost ............ -- -- 1,224,620 (2,925,593)
Compensation expense on stock options .......... -- -- -- --
Net income ..................................... 7,708,906 -- -- --
----------- ----------- --------- -----------
Balance as of July 3, 1999 ..................... 6,086,691 (2,163,542) 1,351,726 (3,378,512)
Exercise of stock options ...................... -- -- -- --
Interest on notes receivable arising from
common stock purchase agreements .............. -- (85,190) -- --
Officers' notes forgiven on stock purchases .... -- 452,965 -- --
Officers' notes paid on stock purchases ........ -- 1,766,530 -- --
Purchase of treasury stock, at cost ............ -- -- 190,800 (758,626)
Stock option issuance related to
non-employees ................................. -- -- -- --
Net income ..................................... 19,598,567 -- -- --
----------- ----------- --------- -----------
Balance as of July 1, 2000 ..................... $25,685,258 ($ 29,237) 1,542,526 ($ 4,137,138)
=========== =========== ========= ===========
See accompanying notes.
Total
--------------
Balance as of June 30, 1997 .................... $ 29,501,833
Exercise of stock options ...................... 732,666
Interest on notes receivable arising from
common stock purchase agreements .............. (143,190)
Net income ..................................... 6,013,439
------------
Balance as of June 30, 1998 .................... 36,104,748
Exercise of stock options ...................... 1,022,776
Interest on notes receivable arising from
common stock purchase agreements .............. (142,400)
Officers' note forgiven on stock purchases ..... 744,321
Purchase of treasury stock, at cost ............ (2,925,593)
Compensation expense on stock options .......... 182,767
Net income ..................................... 7,708,906
------------
Balance as of July 3, 1999 ..................... 42,695,525
Exercise of stock options ...................... 1,027,921
Interest on notes receivable arising from
common stock purchase agreements .............. (85,190)
Officers' note forgiven on stock purchases ..... 452,965
Officers notes paid on stock purchases ......... 1,766,530
Purchase of treasury stock, at cost ............ (758,626)
Stock option issuance related to
non-employees ................................. 1,592,275
Net income ..................................... 19,598,567
------------
Balance as of July 1, 2000 ..................... $ 66,289,967
============
See accompanying notes.
F-4
Concord Camera Corp. and Subsidiaries
Consolidated Statements of Cash Flows
Year Ended
-----------------------------------------------------
July 1, July 3, June 30,
2000 1999 1998
---------------- --------------- ----------------
Cash flows from operating activities:
Net income ............................................. $ 19,598,567 $ 7,708,906 $ 6,013,439
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization ......................... 4,465,237 4,111,148 3,316,328
Amortization of deferred financing costs .............. 174,487 122,298 --
Officers' notes forgiven on stock purchases ........... 452,965 744,321 --
Interest income on notes receivable arising from
common stock agreements ............................. (85,190) (142,400) (143,190)
Deferred income taxes ................................. (4,232,389) 159,531 116,677
Non-cash compensation expense on stock options 220,193 182,767 --
Changes in operating assets and liabilities:
Accounts receivable ................................. (15,297,718) 1,689,205 (10,094,572)
Inventories ......................................... (10,982,591) 838,039 (5,706,193)
Prepaid expenses and other current assets ........... (3,222,708) 833,729 (146,460)
Other assets ........................................ (3,216,104) (2,256,699) (81,985)
Accounts payable .................................... 9,286,087 2,010,781 5,548,135
Accrued expenses .................................... 7,802,864 567,185 2,186,315
Income taxes payable ................................ 1,128,015 516,481 376,831
Other current liabilities ........................... 383,649 (36,723) (89,184)
Other long-term liabilities ......................... 3,185,488 470,679 (150,001)
------------- ------------ -------------
Net cash provided by operating activities .......... 9,660,852 17,519,248 1,146,140
------------- ------------ -------------
Cash flows from investing activities:
Purchases of property, plant and equipment ............ (7,792,029) (6,166,331) (4,458,775)
------------- ------------ -------------
Net cash used in investing activities ............... (7,792,029) (6,166,331) (4,458,775)
------------- ------------ -------------
Cash flows from financing activities:
Net (repayments) borrowings under short-term debt
agreements ............................................ (5,898,638) (2,733,111) 2,845,697
Net (repayments) borrowings under long-term debt
agreements ............................................ (2,100,000) (396,460) 2,066,541
Proceeds from issuance of senior notes, net ............ -- 14,850,000 --
Net principal borrowings (repayments) under capital
lease obligations ..................................... (2,222,477) 2,416,533 (510,390)
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 ............. 1,027,921 1,022,776 732,666
------------- ------------ -------------
Net cash (used in) provided by financing
activities ........................................ (8,185,290) 12,234,145 5,134,514
------------- ------------ -------------
Net (decrease) increase in cash and cash equivalents (6,316,467) 23,587,062 1,821,879
Cash and cash equivalents at beginning of the year ..... 30,706,761 7,119,699 5,297,820
------------- ------------ -------------
Cash and cash equivalents at end of the year ........... $ 24,390,294 $ 30,706,761 $ 7,119,699
============= ============ =============
Supplemental disclosure of cash flow information:
Cash paid for interest ................................. $ 2,768,000 $ 3,048,000 $ 1,299,000
============= ============ =============
Cash paid for income taxes ............................. $ 819,000 $ 15,000 $ 120,000
============= ============ =============
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"), Concord Camera GmbH ("Concord GmbH"), Concord
Camera (Europe) Limited (formerly Concord Camera UK Ltd) ("Concord UK"),
Goldline (Europe) Limited ("Goldline"), Concord-Keystone Sales Corporation
("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 years ended July 1,
2000 ("Fiscal 2000"), July 3, 1999 ("Fiscal 1999") and June 30, 1998 ("Fiscal
1998") amounted to approximately $102,525,000 (59.2%), $68,105,000 (57.5%), and
$56,592,000 (55.1%) respectively. The Company believes that the loss of such
customers would have a material effect on the Company as a whole. No other
customer accounted for 10% or more of consolidated net sales during Fiscal
2000, Fiscal 1999 or Fiscal 1998. Additionally, the Company's three largest
customers individually, or in aggregate, account from time to time, for more
than 10% of the total accounts receivable outstanding. At July 1, 2000,
approximately $18,370,000 related to these three customers, and was included in
accounts receivable in the accompanying consolidated balance sheet.
The Company's products include traditional and single use cameras in 35
mm, APS and instant formats. For Fiscal 2000, Fiscal 1999, and Fiscal 1998
sales of single use cameras were 48.2%, 45.2% and 45.9%, respectively of total
sales.
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
year-end was the twelve-month period ending June 30. Accordingly, for Fiscal
2000 and Fiscal 1999, the year-end was on July 1, 2000, and July 3, 1999,
respectively.
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.
Inventories
Inventories, which consist mostly of raw materials, are stated at the
lower of cost or market 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:
July 1, July 3,
2000 1999
----------- -----------
Raw material and components ......... $22,116,287 $15,605,934
Finished goods ...................... 9,486,860 5,014,622
----------- -----------
$31,603,147 $20,620,556
=========== ===========
Property, Plant and Equipment
Property, plant and equipment are carried at cost less accumulated
depreciation. Depreciation is computed by use of the straight-line method over
the estimated useful lives of the respective assets which range from two
F-6
CONCORD CAMERA CORP. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
NOTE 1 -- BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES: -- (Continued)
to forty three years. 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. Amortization of assets recorded
under capital leases is included in depreciation and amortization expense.
Intangible Assets
Cost in excess of net assets acquired (goodwill) is being amortized on a
straight-line basis over its estimated life 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 July 1, 2000 and July 3, 1999 was approximately
$2,389,705 and $2,262,000, 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 2000, Fiscal 1999 or Fiscal 1998.
Other Assets
Other assets include trademarks, patents, licensing fees, deposits,
capitalized costs and non-current receivables. Trademarks, patents, licensing
fees and capitalized costs are amortized on a straight-line basis over their
estimated useful lives.
Revenue Recognition
Revenues are recorded when the product is shipped to a customer net of
appropriate reserves for returns.
Advertising
Advertising costs are expensed as incurred and included in selling
expenses. Advertising allowances and other discounts totaled approximately
$688,000, $464,000, and $793,000 for Fiscal 2000, Fiscal 1999 and Fiscal 1998,
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
F-7
CONCORD CAMERA CORP. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
NOTE 1 -- BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES: -- (Continued)
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 2000, Fiscal 1999 and Fiscal 1998, included in
other (income) expense, net in the accompanying consolidated statements of
income are approximately $143,000, $432,000, and ($371,000), respectively, of
net foreign currency (gains) losses.
Forward Exchange Contracts
During Fiscal 2000, Fiscal 1999 and Fiscal 1998, the Company's hedging
activities were immaterial and as of July 1, 2000 there were no forward
exchange contracts outstanding. The Company continues to analyze the benefits
and costs associated with hedging against foreign currency fluctuations.
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
deferred tax asset or tax liability from period to period. Valuation allowances
are established when necessary to reduce deferred tax assets to the amount
expected to be realized.
Earnings Per Share
Basic and diluted earnings per share are calculated in accordance with
SFAS No. 128, Earnings per Share. All applicable earnings per share amounts
have been presented to conform to the SFAS 128 requirements. The Company
announced a two-for-one stock split of its Common Stock effected through a
stock dividend to shareholders of record on March 27, 2000 and payable on April
14, 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 7.) 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 generally
accepted accounting principles 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.
F-8
CONCORD CAMERA CORP. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
NOTE 1 -- BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES: -- (Continued)
Impact of Recently Issued Accounting Standards
In Fiscal 1999, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities. This statement establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts and for hedging activities. It requires
that an entity recognizes all derivatives as either assets or liabilities in
the statement of financial position and measures those instruments at fair
value. Subsequently, the FASB issued SFAS No. 137, Accounting for Derivative
Instruments and Hedging Activities -- Deferral of the Effective Date of FASB
Statement No. 133, which amends the effective date of SFAS No. 133 to all
fiscal quarters of all fiscal years beginning after June 15, 2000. The Company
plans to adopt SFAS No. 133 in Fiscal Year 2001 and is currently assessing the
impact this statement will have on its consolidated financial statements.
Management believes that the impact of SFAS No. 133 will not be significant to
the Company.
NOTE 2 -- ACCOUNTS RECEIVABLE:
Accounts receivable consist of the following:
July 1, July 3,
2000 1999
----------- -----------
Trade accounts receivable ....................... $33,994,931 $18,672,034
Less: Allowances for doubtful accounts, discounts
and allowances ................................. (424,884) (399,705)
----------- -----------
$33,570,047 $18,272,329
=========== ===========
NOTE 3 -- PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment consist of the following:
July 1, July 3,
2000 1999
---------------- ----------------
Buildings, including buildings under capital lease ......... $ 7,439,520 $ 7,451,114
Equipment, including equipment under capital lease ......... 24,447,583 21,647,213
Office furniture and equipment ............................. 8,537,289 6,164,743
Automobiles ................................................ 373,916 256,623
Leasehold improvements ..................................... 4,038,720 1,854,971
------------- -------------
44,837,028 37,374,664
Less: Accumulated depreciation and amortization ............ (22,027,007) (18,503,364)
------------- -------------
$ 22,810,021 $ 18,871,300
============= =============
F-9
CONCORD CAMERA CORP. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
NOTE 4 -- SHORT-TERM DEBT:
Short-term debt is comprised of the following:
July 1, July 3,
2000 1999
---------- ----------
Hong Kong Credit Facilities ............. $1,495,212 $8,088,901
United Kingdom Credit Facility .......... 695,051 --
United States Credit Facilities ......... -- --
---------- ----------
$2,190,263 $8,088,901
========== ==========
Hong Kong Credit Facilities
In Fiscal 1999, Concord HK had use of a $10,000,000 Non-Notification
Factoring with Recourse Facility ("Factoring Facility") that was guaranteed by
the Company, was secured by certain accounts receivables of Concord HK's
operations and bore interest at 1.5% above the prime lending rate. During the
last quarter of Fiscal 1999, $2,000,000 of the factoring facility was converted
into two $1,000,000 equipment leasing facilities with terms of three and four
years each. Availability under the factoring facility was subject to advance
formulas based on eligible accounts receivable with no minimum borrowings. At
July 3, 1999, approximately $6,584,901 and $1,050,000 was outstanding and
classified as short-term debt and capital lease obligations, respectively.
Additionally, in April 1999, Concord HK entered into a credit facility
(the "Concord HK Facility") with a lender that provided Concord HK with up to
$4,200,000 of financing as follows: letters of credit of up to $2,900,000, and
packing loans of up to $1,300,000. At July 3, 1999, approximately $1,504,000 in
borrowings was utilized and outstanding under the facility. The facility was
payable on demand, and bore interest at 2% above the prime lending rate which
was 8.5% at July 1, 1999. The Company guaranteed all amounts outstanding under
the facility.
During the second quarter of Fiscal 2000, Concord HK consummated a
$26,200,000 credit facility (the "HK Facility") that is guaranteed by the
Company, is secured by certain accounts receivables of Concord HK's operations
and bears interest at 0.5% above the prime lending rate which was 9.5% at July
1, 2000. The HK Facility is comprised of 1) a $5,600,000 Import Facility, 2) a
$2,600,000 Packing Credit and Export Facility, and 3) an $18,000,000 Accounts
Receivable Financing Facility. Availability under the Accounts Receivable
Financing Facility is subject to advance formulas based on Eligible Accounts
Receivable with no minimum borrowings. The Company utilized the HK Facility to
replace both the Factoring Facility and the Concord HK Facility. At July 1,
2000, $1,495,212 was outstanding under the HK Facility and classified as
short-term debt.
United Kingdom Credit Facility
In November 1999, Goldline, a Concord UK subsidiary, became indebted under
a credit facility (the "UK Facility") in the United Kingdom that is secured by
substantially all of the assets of Goldline. The UK Facility bears interest at
2.0% above the prime lending rate, is principally utilized for working capital
needs and allows borrowings of up to approximately $1,000,000. At July 1, 2000,
approximately $695,000 was outstanding under the UK Facility and classified as
short-term debt.
United States Credit Facilities
In June 2000, Concord Camera Corp. and a U.S. subsidiary entered into
credit facilities (the "US Facilities") with lenders that provides 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"), which was 7.2%
at July 1, 2000. No amounts were outstanding under the US Facilities at July 1,
2000.
F-10
CONCORD CAMERA CORP. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
NOTE 4 -- SHORT-TERM DEBT: -- (Continued)
The weighted average interest rate on the Company's short-term borrowings
was approximately 10.6% and 11.7% at July 1, 2000 and July 3, 1999,
respectively.
NOTE 5 -- LONG-TERM DEBT:
Long-term debt consists of the following:
July 1, July 3,
2000 1999
----------- ------------
Senior Notes -- $15,000,000 at 11% interest dated
July 30, 1998, due July 30, 2005 ............... $14,891,071 $ 14,850,000
Mortgage payable through July 9, 1999, monthly
Payments of interest only at 12.97%. Facility is
secured by Company owned Manufacturing facility
in Boan County Shenzhen Municipal, PRC ......... -- 2,100,000
----------- ------------
14,891,071 16,950,000
Current portion of long-term debt ............... -- (2,100,000)
----------- ------------
Long term-debt .................................. $14,891,071 $ 14,850,000
=========== ============
Senior Notes Payable
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 judgment against the Company or any subsidiary,
and any security interest or guarantees that cease to be in effect.
NOTE 6 -- FINANCIAL INSTRUMENTS:
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 July 1,
2000. The fair value is estimated based on the quoted market prices for the
same issues or on current 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.
Business and Credit Concentrations
Financial instruments that potentially subject the Company to
concentrations of credit risk consist of cash, cash equivalents and accounts
receivable. The Company's cash and cash equivalents are deposited with
recognized financial institutions. Concentrations of credit risk in accounts
receivable resulting from sales to major customers are discussed in Note 1. The
Company generally does not require collateral for sales on credit. The Company
also closely monitors extensions of credit and has not experienced significant
credit losses in the past.
F-11
CONCORD CAMERA CORP. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
NOTE 7 -- SHAREHOLDERS' EQUITY:
The Company announced a two-for-one stock split of its Common Stock
effected through a stock dividend to shareholders of record on March 27, 2000
and payable on April 14, 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.
The Board of Directors of the Company authorized in the fourth quarter of
Fiscal 2000, the Company to issue up to 1,000,000 shares of preferred stock.
Such shares of preferred stock are granted certain rights and preferences.
There were no shares issued or outstanding as of July 1, 2000.
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. Upon the adoption of the Incentive Plan, the
Company's 1988 Stock Option Plan was terminated except with respect to any
unexercised options outstanding thereunder.
Stock option activity is as follows:
Number of Shares Option price per share
------------------ -----------------------
Outstanding at June 30, 1997 .......... 2,744,900 $0.88 - $4.50
Canceled .............................. (193,100) $1.35 - $4.50
Granted ............................... 441,026 $0.95 - $2.50
Exercised ............................. (495,850) $0.91 - $1.91
--------- --------------
Outstanding at June 30, 1998 .......... 2,496,976 $0.88 - $4.50
Canceled .............................. (1,000) $ 1.50
Granted ............................... 157,000 $1.63 - $3.07
Exercised ............................. (302,680) $0.88 - $2.00
--------- --------------
Outstanding at July 3, 1999 ........... 2,350,296 $0.88 - $3.07
Canceled .............................. (29,326) $1.00 - $4.50
Granted ............................... 1,306,874 $2.75 - $22.19
Exercised ............................. (296,796) $0.88 - $4.06
--------- --------------
Outstanding at July 1, 2000 ........... 3,331,048 $0.88 - $22.19
=========
At July 1, 2000, 656,318 shares are available for future grants, and there
are 2,403,308 options exercisable with a range of exercise prices from $0.88 to
$22.19. As of July 1, 2000, a total of 4,498,548 shares of Common Stock have
been reserved for issuance. The Company, from time to time, will grant to
certain individuals, stock options as part of an individual employee stock
option plan as inducement of employment. These grants are not made under the
Incentive Plan. As of July 1, 2000 there were 1,189,500 stock options
outstanding under individual employee stock option plans with exercise prices
ranging from $1.00 to $22.63. There were a total of 925,250 stock options
available for exercise at July 1, 2000 with a range of exercise prices from
$1.00 to $22.63.
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 non-employee directors to January 31, 2004. Compensation expense
recognized by the Company related to this modification amounted to $182,767 for
Fiscal 1999. In Fiscal 2000, the Company granted stock options to certain
non-employee consultants which resulted in compensation expense of
approximately $220,000, deferred compensation of $1,372,000, and a
corresponding increase in paid-in capital of $1,592,000.
Pro forma information regarding net income and earnings per share is
required by SFAS No.
F-12
CONCORD CAMERA CORP. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
NOTE 7 -- SHAREHOLDERS' EQUITY: -- (Continued)
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 July 1, 2000:
Expected dividend yield 0% for all three periods. Expected life of the
options within a range of 3 to 7.5 years. Risk free interest rates within
a range of 4.6% to 6.2% and a volatility factor of the Company's common
stock of .749, .716, and .747 for Fiscal 2000, 1999 and 1998,
respectively.
The Black-Scholes option valuation model was developed for us in
estimating the fair value of traded options which 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, the management's option, 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 weighted average fair value per share of options granted during Fiscal
2000, 1999, and 1998 to be $7.67, $1.65, and $1.90, 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. Stock
options vest over several years and new stock option grants are generally made
each year. Accordingly, the pro forma amounts shown below may not be
representative of the pro forma effect on reported net income in future years.
The Company's pro forma information is as follows:
Fiscal Year
------------------------------------------------
2000 1999 1998
------------ ----------- -----------
Pro forma net income ........................... $ 18,378,198 $ 7,328,297 $ 5,593,640
============ =========== ===========
Pro forma basic net income per share ........... $ 0.84 $ 0.33 $ 0.26
============ =========== ===========
Pro forma diluted net income per share ......... $ 0.76 $ 0.32 $ 0.24
============ =========== ===========
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 $2.69 per share (the closing price of the common stock on August 23,
1995, as adjusted for the two-for-one stock split paid 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 mature five years from the date of purchase and 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.
F-13
CONCORD CAMERA CORP. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
NOTE 7 -- SHAREHOLDERS' EQUITY: -- (Continued)
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 $0.91 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.
Pursuant to the Company's Management Equity Provisions, so long as a
person remains a member of the management group, such person is required to own
shares of common stock in an amount not less than 50% of such person's shares
issued pursuant to the Management Equity Provisions plus shares issuable upon
the exercise of options thereunder.
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 would 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. During Fiscal 2000,
certain members of the Company's senior management team prepaid the
indebtedness represented by the Notes in the aggregate amount of $1,766,530. In
accordance with the intention of the Board to treat such prepayments as amounts
to be repaid as deferred compensation at such time as the amount would have
otherwise been forgiven in accordance with the Release Program, the Company
contributed approximately $1,237,000 to a retirement plan for a member of the
senior management team. Such amount will vest over time in accordance with the
Release Program's scheduled foregiveness dates.
At the Board of Directors meeting of August 23, 1995, a Management
Incentive Compensation Program was approved for the 1995 Fiscal Year and for
subsequent periods. The Plan was enacted in order to foster increased efforts
by senior executives on behalf of the Company by giving them a direct financial
interest in the Company's performance and to encourage key employees to remain
with the Company as well as to provide an incentive in the recruitment of
senior management. The incentive pool is to be earned if the Company achieves
certain return on equity goals. The goals are reviewable each year by the Board
and may be amended. If the goals are achieved, an Incentive Fund is to be
established of up to 10% of earnings after taxes and any unawarded portion of
an Incentive Fund from previous years. Included in general and administrative
expenses in the accompanying consolidated statements of income for Fiscal 2000,
Fiscal 1999 and Fiscal 1998, are $1,775,112, $911,254 and $703,526,
respectively, accrued for incentive compensation payments.
F-14
CONCORD CAMERA CORP. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
NOTE 8 -- INCOME TAXES:
Income before income taxes in the accompanying consolidated statements of
income consists of the following:
Year Ended
------------------------------------
July 1, July 3, June 30,
2000 1999 1998
------- -------- ------
(in 000's)
United States ......... $ 27 $ (1,470) $1,401
Foreign ............... 16,820 10,072 5,116
------- -------- ------
$16,847 $ 8,602 $6,517
======= ======== ======
The (benefit) provision for income taxes is comprised of the following:
Year Ended
--------------------------------------------
July 1, July 3, June 30,
2000 1999 1998
------------ -------- ---------
Current .......... $ 1,481,000 $733,656 $ 386,871
Deferred ......... (4,232,389) 159,531 116,677
------------ -------- ---------
$ (2,751,389) $893,187 $ 503,548
============ ======== =========
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 July 1, 2000
are as follows:
Domestic
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)
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.
F-15
CONCORD CAMERA CORP. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
NOTE 8 -- INCOME TAXES: -- (Continued)
The effects of significant items comprising the Company's deferred tax
asset and liability as of July 3, 1999 are as follows:
Domestic
Federal State Foreign Total
------------ ---------- --------- -----------
Deferred Tax Liabilities:
Difference between book and tax basis of
property ................................. $ -- $ -- ($ 820,302) ($ 820,302)
Other deferred liabilities ................ -- -- (28,398) (28,398)
------------ ---------- --------- -----------
Total deferred liabilities -- -- (848,700) (848,700)
Deferred Tax Assets: ......................
Operating loss carryforwards .............. 3,699,694 74,124 -- 3,773,818
Reserves not currently deductible ......... 147,715 25,807 -- 173,522
Difference between book and tax basis of
foreign subsidiaries ..................... 979,096 32,085 -- 1,011,181
Depreciation .............................. 143,096 15,055 -- 158,151
Compensation accruals ..................... 448,089 78,284 -- 526,372
Foreign taxes ............................. (1,475) (258) -- (1,733)
Difference between book and tax basis of
property ................................. 95,092 16,613 -- 111,705
Tax credits ............................... 45,369 -- -- 45,369
Contributions carryover ................... 28,376 6,467 -- 34,843
Other deferred tax assets ................. 162,525 28,394 -- 190,920
------------ ---------- --------- -----------
Total deferred tax assets ................. 5,747,577 276,571 -- 6,024,148
------------ ---------- --------- -----------
Valuation allowance ....................... (5,747,577) (276,571) -- (6,024,148)
------------ ---------- --------- -----------
Net deferred tax liability ................ $ -- $ -- ($ 848,700) ($ 848,700)
============ ========== ========= ===========
In May 1992, the Hong Kong Inland Revenue Department notified Concord HK
that its annual tax rate commencing July 1, 1992 will be 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 for 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 condition.
The Company does not provide 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
$48,353,000 as of July 1, 2000. 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 July 1, 2000, Concord had net operating loss carryforwards for U.S. tax
purposes of approximately $6,469,000, which expire as follows: $4,116,000 in
2008, $2,353,000 in 2009 and the balance thereafter. Losses for state tax
purposes begin to expire in 2002.
F-16
CONCORD CAMERA CORP. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
NOTE 8 -- INCOME TAXES: -- (Continued)
Historically, the Company has 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 assets, will be realized. The
realization of its deferred tax assets relates directly to the Company's
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 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.
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
---------------------------------------------------
July 1, July 3, June 30,
2000 1999 1998
----------- ----------- ------------
Computed tax (benefits) at statutory U.S. federal
tax rates ......................................... $ 5,728,040 $ 2,924,712 $ 2,215,776
Utilization of operating loss carryforward ......... -- -- (476,180)
Earnings of foreign subsidiaries subject to a
different tax rate ................................ (3,029,551) (2,894,376) (1,754,284)
Reversal of valuation allowance .................... (6,024,148) -- --
Refund of prior years' income taxes paid by
foreign subsidiary ................................ -- -- (58,733)
U.S. federal minimum tax ........................... 95,000 -- 68,798
Losses producing no current tax benefit ............ 35,071 1,059,900 554,473
State income tax, net of federal benefit ........... 203,000 30,000 --
Other .............................................. 241,199 ( 227,049) (46,302)
----------- ----------- ------------
Provision (benefit) ................................ ($ 2,751,389) $ 893,187 $ 503,548
=========== =========== ============
NOTE 9 -- 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 $4,921,000, $4,815,000 and $3,963,000, during Fiscal 2000, 1999
and 1998, respectively, for product design and development associated with
digital image acquisition devices, traditional and Advanced Photo System single
use cameras and traditional and Advanced Photo System cameras, and single use
and manual instant cameras. These costs are included in the accompanying
consolidated statements of income under the caption, costs of products sold.
NOTE 10 -- COMMITMENTS AND CONTINGENCIES:
United States Offices and Warehouses
The Company's principal offices are located in an approximate 15,000
square foot facility, including the U.S. design center at 4000 Hollywood Blvd.,
Hollywood, Florida. The Company's domestic warehouse is located in a 12,000
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 August 2010, and January 2009, respectively.
F-17
CONCORD CAMERA CORP. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
NOTE 10 -- COMMITMENTS AND CONTINGENCIES: -- (Continued)
Hong Kong
The Company owns one floor 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 Baoan County, Shenzhen Municipal, 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 China, the Company incurred costs of approximately $4,000,000. Such cost
will be amortized over the expected useful life of the expansion. If production
requirements continue to increase, the Company may be required to provide for
an additional dormitory. The current processing agreement with the PRC expires
in November 2002. 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 use the land through the year 2042. At the end of the
term, a PRC governmental agency will own the facilities. At that time, the
Company has the right under the agreement and 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 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.
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 $50,000.
The following is a summary of assets under capitalized leases:
July 1, July 3,
2000 1999
------------ ------------
Assets under capitalized leases ......... $ 6,233,170 $ 11,619,227
Less: accumulated amortization .......... (1,598,623) (5,248,246)
------------ ------------
$ 4,634,547 $ 6,370,981
============ ============
F-18
CONCORD CAMERA CORP. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
NOTE 10 -- COMMITMENTS AND CONTINGENCIES: -- (Continued)
Future minimum rental payments are as follows:
Operating leases Capital leases
------------------ ---------------
Fiscal Year ......................................
2001 ............................................. $1,379,940 $1,452,092
2002 ............................................. 1,082,994 1,091,102
2003 ............................................. 1,000,202 175,397
2004 ............................................. 760,324 20,013
2005 ............................................. 391,704 --
Thereafter ....................................... 874,844 --
---------- ----------
Total minimum payments .............................. $5,490,008 2,738,604
==========
Less amounts representing interest .................. (264,509)
----------
Present value of net minimum lease payments ......... $2,474,095
==========
The effective interest rates on capital leases range from approximately
11% to 14%. Rental expense for operating leases of approximately $1,203,859,
$1,336,000 and $998,000 was incurred for Fiscal 2000, Fiscal 1999 and Fiscal
1998, respectively.
Pursuant to an employment agreement between the Company and Ira B.
Lampert, the Chairman, Chief Executive Officer and President of the Company,
the Company adopted a supplemental executive retirement plan (as amended, the
"Lampert SERP") for the benefit of Mr. Lampert and causes $18,333 (being
amended to reflect an increase to $33,333 effective as of January 1, 2000) to
be credited to this account each month ("Monthly Credit") for the benefit of
Mr. Lampert. The balance in the Lampert SERP account will always be 100% vested
and not subject to forfeiture. Each time the Company credits a Monthly Credit
to the Lampert SERP account, the Company will simultaneously contribute 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 establishment of the Lampert SERP.
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 a change of
control of the Company. 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 as under the Executive SERPs. The Lampert SERP is being amended to
include appropriate terms to govern the one-time grant of deferred compensation
to Mr. Lampert. As of July 1, 2000, the Company had funded approximately
$4,100,000 to the Lampert SERP which includes the one-time grant of deferred
compensation of $1,549,999 and the contribution of approximately $1,237,000
related to the Release Program (See Note 7). Including investment income, the
Lampert SERP balance of approximately $4,300,000 was included in other assets
and other long-term liabilities in the accompanying consolidated balance sheet
at July 1, 2000.
The Company has License and Royalty Agreements which require the payment
of royalties based on the manufacture and/or sale of certain products which
expire at various dates through Fiscal 2008.
F-19
CONCORD CAMERA CORP. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
NOTE 11 -- 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 $1,500,000 against Jack C. Benun
("Benun"), its former chief executive officer who was discharged for cause in
Fiscal 1995. This action was taken due to Benun's failure to fully compensate
the Company for damages it sustained as a result of Benun's breaching his
employment obligations, his fiduciary obligations and perpetrating frauds upon
the Company, including the misappropriation of funds from the Company. Benun
has submitted a counterclaim in which he alleges wrongful termination of his
employment and denial of benefits by the Company. Benun's counterclaim does not
contain any statement of the dollar amount of his alleged damages, although he
has written to the Company asserting damages of approximately $6,700,000. The
Company is vigorously pursuing its action as well as defending the
counterclaim. On August 24, 1999, the arbitrator upheld the propriety of
Concord's termination for cause of Benun. The arbitrator found that Benun
perpetrated frauds on the Company by diverting and embezzling Company monies.
The Company is pursuing damage claims against Benun related to the frauds and
embezzlement. Phase two of the arbitration is scheduled to begin during the
week of September 25, 2000.
Fuji
On December 30, 1997, the Company commenced in the United States District
Court of the Southern District of New York (the "Court") an action against Fuji
seeking to enforce the terms of a Settlement Agreement between the Company and
Fuji (the "Settlement Agreement") and to restrain Fuji from terminating the
Settlement Agreement. Under the terms of the Settlement Agreement, the Company
has been granted a worldwide (subject to certain geographic limitations),
non-exclusive license to use certain Fuji technology in connection with the
manufacture and sale of single use cameras. Termination of the license would
have a material adverse effect on the Company's single use camera business if
Fuji's patents were found to be valid and infringed by the Company's single use
products. On January 9, 1998, the Court granted the Company's request for an
order restraining Fuji from terminating the Settlement Agreement. Pending a
final judicial determination of the disputes, the restraining order will
continue in effect as long as the Company refrains from making any further
shipments pursuant to the purchase order that gave rise to the dispute. Fuji
filed a motion for summary judgment, and the Company filed a motion seeking to
preclude Fuji from presenting certain expert testimony. Both motions were
denied by the Court, but Concord will be allowed to reassert its motion at
trial if Fuji does not establish an adequate evidentiary basis for the expert
testimony. The Court scheduled this matter for trial beginning on October 31,
2000.
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, including those described above, will not have a
material effect on its financial position or results of operations.
NOTE 12 -- 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, no
additional reporting is required. Set forth below is a summary of selected
financial information regarding the Company's geographic operations (in 000's):
F-20
CONCORD CAMERA CORP. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
NOTE 12 -- GEOGRAPHIC AREA INFORMATION: -- (Continued)
Year Ended
---------------------------------------
July 1, July 3, June 30,
2000 1999 1998
-------- -------- --------
Sales made to unaffiliated customers:
United States ................................. $ 14,175 $ 4,739 $ 4,923
Canada ........................................ 3,114 3,528 3,957
Central America ............................... 304 122 575
Hong Kong/People's Republic of China .......... 142,480 101,327 85,896
Federal Republic of Germany ................... 1,861 1,240 948
United Kingdom ................................ 7,312 3,977 3,923
France ........................................ 3,912 3,485 2,441
-------- -------- --------
$173,158 $118,418 $102,663
======== ======== ========
Sales to unaffiliated customers exclude intercompany sales (in 000's) of
approximately $26,442, $12,474 and $11,548 for Fiscal 2000, 1999 and 1998,
respectively. The basis of accounting for intercompany sales is cost plus a
manufacturing profit
Year Ended
-----------------------------------
July 1, July 3, June 30,
2000 1999 1998
------- ------- ------
Income (loss) before income taxes:
United States ................................ $ 232 $ (839) $2,005
Canada ....................................... (169) (438) (540)
Central America .............................. (36) (284) (64)
Hong Kong/People's Republic of China ......... 16,630 11,142 6,747
Federal Republic of Germany .................. (103) (345) (777)
United Kingdom ............................... 321 (649) (817)
France ....................................... (28) 15 (37)
------- ------- ------
$16,847 $ 8,602 $6,517
======= ======= ======
July 1, July 3,
2000 1999
-------- -------
Identifiable assets:
United States ................................ $ 26,587 $23,831
Canada ....................................... 2,191 909
Central America .............................. 302 240
Hong Kong/People's Republic of China ......... 91,644 66,478
Federal Republic of Germany .................. 868 577
United Kingdom ............................... 10,088 2,482
France ....................................... 2,323 2,130
-------- -------
$134,003 $96,647
======== =======
F-21
CONCORD CAMERA CORP. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
NOTE 13 -- RELATED PARTY TRANSACTIONS:
During the first quarter of Fiscal 1995, the Company entered into an
agreement with a member of the Board to provide sales and marketing consulting
services. Selling expenses include $27,000, $49,000 and $56,000 for such
consulting services and related expenses during Fiscal 2000, 1999 and 1998,
respectively.
A corporation controlled by a member of Board has provided consulting
services to the Company since 1997 pursuant to an engagement agreement entered
into on September 25, 1997, as amended and supplemented in 1998 and 1999 (the
"Consulting Agreement"). Pursuant to the Consulting Agreement, the Company
granted warrants to purchase up to 260,000 shares of common stock at an
exercise price of $2.25 per share to the corporation controlled by the board
member. As of July 15, 2000, such warrants were vested and exercisable as to
113,000 shares of common stock.
NOTE 14 -- OTHER (INCOME) EXPENSES -- NET:
Included in the accompanying consolidated statements of income under the
caption, other (income) expense, net is the following:
July 1, July 3, June 30,
2000 1999 1998
----------- ----------- ---------
Other interest (income) ................... ($ 1,359,231) ($ 1,098,728) ($ 432,821)
Other expense, net ........................ 177,042 68,856 151,150
Directors' fees ........................... 157,000 157,000 136,000
Foreign exchange (gain) loss, net ......... 143,427 432,000 (371,023)
----------- ----------- ---------
($ 881,762) ($ 440,872) ($ 516,694)
=========== =========== =========
F-22
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
beginning of costs and other Balance at end
Description period expenses accounts Deductions of period
- ----------- -------------- -------------- ----------- ------------ ---------------
Allowance for doubtful accounts, discounts and allowances
Fiscal Year:
1998 ......... $1,002,473 ($ 439,350) -- -- $563,123
1999 ......... $ 563,123 ($ 163,418) -- -- $399,705
2000 ......... $ 399,705 $ 25,179 -- -- $424,884