United States
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended December 27, 2008
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _________ to ___________
Commission file number 0-17038
Concord Camera Corp.
--------------------
(Exact name of registrant as specified in its charter)
New Jersey 13-3152196
------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4000 Hollywood Blvd., 6th Floor, North Tower, Hollywood, Florida 33021
----------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(954) 331-4200
--------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes |X| No |_|
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of "large accelerated filer," "accelerated filer" and "smaller
reporting company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer |_| Accelerated filer |_|
Non-accelerated filer |X| Smaller reporting company |_|
(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act).
Yes |_| No |X|
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock, no par value - 5,913,610 shares as of March 6, 2009
Index
Concord Camera Corp. and Subsidiaries
Part I. FINANCIAL INFORMATION Page No.
--------
Item 1. Financial Statements (Unaudited)
Condensed consolidated statement of net assets (unaudited)
as of December 27, 2008 (liquidation basis) and condensed
consolidated balance sheet as of June 28, 2008 (going
concern basis)..................................................... 3
Condensed consolidated statement of changes in net assets
(unaudited) for the period December 19, 2008 to December
27, 2008 (liquidation basis)....................................... 4
Condensed consolidated statements of operations for the period
September 28, 2008 to December 18, 2008 and for the three
months ended December 29, 2007 (going concern basis - unaudited)... 5
Condensed consolidated statements of operations for the period
June 29, 2008 to December 18, 2008 and for the six months ended
December 29, 2007 (going concern basis - unaudited)................ 6
Condensed consolidated statements of cash flows for the period
June 29, 2008 to December 18, 2008 (going concern basis -
unaudited), for the period December 19, 2008 to December 27, 2008
(liquidation basis - unaudited) and for the six months ended
December 29, 2007 (going concern basis - unaudited)................ 7
Notes to condensed consolidated financial statements
(unaudited)........................................................ 8
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.......................................... 21
Item 3. Quantitative and Qualitative Disclosures About Market Risk......... 32
Item 4T. Controls and Procedures............................................ 32
Part II. OTHER INFORMATION
Item 1. Legal Proceedings.................................................. 32
Item 1A. Risk Factors....................................................... 32
Item 4. Submission of Matters to a Vote of Security Holders................ 33
Item 5. Other Information.................................................. 33
Item 6. Exhibits........................................................... 33
2
PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
Concord Camera Corp. and Subsidiaries
Condensed Consolidated Statement of Net Assets as of December 27, 2008
(Liquidation Basis) and Condensed Consolidated Balance Sheet as of June 28, 2008
(Going Concern Basis)
(in thousands)
December 27, 2008
(Liquidation Basis) June 28, 2008
(Unaudited) (Going Concern Basis)
------------------- ---------------------
Assets
Cash and cash equivalents $ 24,681 $ 19,041
Restricted cash 1,071 6,200
Investments 14,726 18,518
Accounts receivable, net 5,352 10,478
Inventories 2,286 10,431
Prepaid expenses - 631
Assets held for sale - 3,814
Property, plant and equipment, net 5,372 868
Other assets 431 621
--------- ---------
Total assets $ 53,919 $ 70,602
========= =========
Liabilities and Stockholders' Equity
Liabilities:
Borrowings under financing facilities $ 9,245 $ 17,621
Accounts payable 1,270 10,583
Accrued royalties 2,126 2,206
Accrued expenses 3,059 4,364
Other liabilities 1,995 1,926
Reserve for estimated costs during the period of liquidation 11,786 --
--------- ---------
Total liabilities 29,481 36,700
Commitments and contingencies
Stockholders' Equity:
Blank check preferred stock, no par value,
1,000 shares authorized, none issued -- --
Common stock, no par value, 20,000 shares
authorized; 6,261 shares issued
as of December 27, 2008 and June 28, 2008 -- 143,860
Additional paid-in capital -- 5,197
Accumulated other comprehensive loss -- (5,082)
Accumulated deficit -- (105,080)
---------
38,895
Less: treasury stock, at cost, 347 shares as
of December 27, 2008 and June 28, 2008 -- (4,993)
---------
Total stockholders' equity 33,902
---------
Total liabilities and stockholders' equity $ 70,602
=========
---------
Net Assets in Liquidation $ 24,438
=========
See accompanying notes to condensed consolidated financial statements.
3
Concord Camera Corp. and Subsidiaries
Condensed Consolidated Statement of Change in Net Assets (Liquidation Basis)
For the Period December 19, 2008 to December 27, 2008
(unaudited)
(in thousands)
For the Period from
December 19, 2008 to
December 27, 2008
--------------------
Net assets in liquidation December 19, 2008 $ 32,539
Changes in net assets in liquidation:
Costs associated with plan of liquidation (11,786)
Adjustments for liquidation basis of accounting 3,527
Operating income 98
Net investment income 19
Other income, net 41
--------
Net loss for the period 158
--------
Change in net assets in liquidation (8,101)
--------
Net assets in liquidation December 27, 2008 $ 24,438
========
See accompanying notes to condensed consolidated financial statements.
4
Concord Camera Corp. and Subsidiaries
Condensed Consolidated Statements of Operations (Going Concern Basis)
For the Period September 28, 2008 to December 18, 2008 and for the
Three Months Ended December 29, 2007 (unaudited)
(in thousands, except per share data)
For the Period
from September Three Months
28 to December Ended December
18, 2008 29, 2007
-------------- --------------
Net sales $ 12,924 $ 18,404
Cost of products sold 13,508 17,098
-------- --------
Gross profit (584) 1,306
Selling expenses 972 1,821
General and administrative expenses 1,585 2,817
-------- --------
Operating loss (3,141) (3,332)
Interest expense 124 124
Other expense (income), net 240 (456)
-------- --------
Loss before income taxes (3,505) (3,000)
Provision (benefit)
for income taxes 4 (787)
-------- --------
Net loss $ (3,509) $ (2,213)
======== ========
Basic and diluted loss per
common share $ (0.59) $ (0.37)
======== ========
Weighted average
common shares
outstanding - basic and
diluted 5,914 5,914
======== ========
See accompanying notes to condensed consolidated financial statements.
5
Concord Camera Corp. and Subsidiaries
Condensed Consolidated Statements of Operations (Going Concern Basis)
For the Period June 29, 2008 to December 18, 2008 and for the Six Months
Ended December 29, 2007 (unaudited)
(in thousands, except per share data)
For the Period Six Months
from June 29, to Ended
December 18, December 29,
2008 2007
---------------- ------------
Net sales $ 30,593 $ 40,102
Cost of products sold 28,008 35,781
-------- --------
Gross profit 2,585 4,321
Selling expenses 2,071 3,994
General and administrative expenses 3,589 5,659
-------- --------
Operating loss (3,075) (5,332)
Interest expense 310 201
Other income, net (1,166) (772)
-------- --------
Loss before income taxes (2,219) (4,761)
Provision (benefit)
For income taxes 8 (785)
-------- --------
Net loss $ (2,227) $ (3,976)
======== ========
Basic and diluted loss per
common share $ (0.38) $ (0.67)
======== ========
Weighted average
common shares
outstanding - basic and
diluted 5,914 5,914
======== ========
See accompanying notes to condensed consolidated financial statements.
6
Concord Camera Corp. and Subsidiaries
Condensed Consolidated Statements of Cash Flows for the Periods June 29, 2008
to December 18, 2008 (Going Concern Basis), for the Period December 19, 2008 to
December 27, 2008 (Liquidation Basis) and for the Six Months Ended December 29,
2007 (Going Concern Basis) (unaudited)
(in thousands)
Period Period Six Months
December 19, 2008 June 29, 2008 Ended
to December 27, to December 18, December 29,
2008 2008 2007
----------------- --------------- ------------
Cash flows from operating activities:
Net loss $ (8,101) $ (2,227) $ (3,976)
Adjustments to reconcile net loss to net cash provided by (used in)
operating activities:
Adjustment to liquidation basis of accounting (3,527) -- --
Depreciation and amortization -- 322 1,662
Gain on disposal of property, plant and equipment -- (213) (63)
Unrecognized tax benefit -- -- (62)
Loss on sale of auction rate securities -- 405 --
Share-based compensation -- 8 6
Changes in operating assets and liabilities:
Accounts receivable, net 921 4,287 2,930
Inventories 550 7,529 2,272
Prepaid expenses and other current assets -- (193) 280
Other assets 243 299 (199)
Accounts payable (118) (8,419) (7,756)
Accrued expenses (288) (835) (1,434)
Accrued royalties 4 2,094 115
Other current liabilities (60) (737) (335)
Other liabilities 37 644 (244)
Reserve for estimated costs during the period of liquidation 11,786 -- --
-------- -------- --------
Net cash provided by (used in) operating activities 1,447 2,964 (6,804)
-------- -------- --------
Cash flows from investing activities:
Restricted cash 1,238 3,891 --
Purchases of property, plant and equipment -- (5) (40)
Proceeds from the sale of property, plant and equipment -- 236 63
Proceeds from sales of available-for-sale investments -- 4,245 43,625
Purchases of available-for-sale investments -- -- (40,900)
-------- -------- --------
Net cash provided by investing activities 1,238 8,367 2,748
-------- -------- --------
Cash flows from financing activities:
(Repayments) borrowings under financing facilities, net (1,042) (7,334) 4,682
-------- -------- --------
Net cash (used in) provided by financing activities (1,042) (7,334) 4,682
-------- -------- --------
Net increase in cash and cash equivalents 1,643 3,997 626
Cash and cash equivalents at beginning of period 23,038 19,041 3,853
-------- -------- --------
Cash and cash equivalents at end of period $ 24,681 $ 23,038 $ 4,479
-------- -------- --------
See accompanying notes to condensed consolidated financial statements.
7
CONCORD CAMERA CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
December 27, 2008
(Unaudited)
Note 1 - Plan of Dissolution and Liquidation:
On August 14, 2006, the Board of Directors (the "Board") of Concord Camera
Corp., a New Jersey corporation (collectively with its consolidated
subsidiaries, the "Company" or "Concord"), established a committee (the "Special
Committee") consisting of three independent directors, to investigate, evaluate
and/or analyze strategic alternatives for the Company and make any
recommendations to the Board with respect to such strategic alternatives that
the Special Committee determined to be appropriate. The Special Committee
considered several alternative strategies, including: (i) continuing current
operations; (ii) making strategic acquisitions; (iii) a sale or other
disposition of all or a significant part of the Company or its business; (iv) a
"going-private" transaction; and (v) a liquidation of the Company. The Special
Committee authorized its financial advisor and management to conduct discussions
and negotiate with potential strategic and financial investors who expressed an
interest in making an investment in or acquiring the Company. However, efforts
by the Special Committee's financial advisor and management to engage in a
transaction with any of these third parties were not successful.
On October 29, 2008, based on the Special Committee's review of the strategic
alternatives and the Special Committee's recommendation, the Board recommended
to the Company's shareholders the dissolution of the Company and the adoption of
a plan of liquidation (the "Plan of Liquidation"). On December 18, 2008, at the
Company's Annual Meeting of Shareholders (the "Annual Meeting"), the Company's
shareholders approved the Plan of Liquidation.
The Plan of Liquidation contemplates an orderly wind down of the Company's
business and operations, the monetization of the Company's non-cash assets, the
satisfaction or settlement of its remaining liabilities and obligations and one
or more distributions to its shareholders. During the wind down period, the
Company will terminate its remaining employees, sell and monetize its non-cash
assets, satisfy or settle its remaining liabilities and obligations, including
contingent liabilities and claims, make one or more distributions to its
shareholders of cash available for distribution and delist its shares from the
NASDAQ Global Market ("NASDAQ"). See Note 12 - Subsequent Events regarding the
Company's initiating the dissolution process and voluntary delisting of its
shares from NASDAQ.
The execution of the Plan of Liquidation will be completed as soon as
practicable. However, the Company is currently unable to predict the amount of
time that will be required to complete the Plan of Liquidation or the precise
timing or amount of any distributions to shareholders pursuant to the Plan of
Liquidation. The amount and timing of any distributions will be determined by
the Board and will depend upon the Company's ability to monetize its non-cash
assets, including, but not limited to, auction rate securities that the Company
has been unable to sell at prices acceptable to it due to the recent disruptions
in the credit markets and for which the Company has reduced the carrying value
by approximately $4.2 million to approximately $14.7 million as of December 27,
2008 and the sale of the Company's property in the People's Republic of China
("PRC") where the real estate market has recently experienced significant
declines due to the worldwide financial crisis, and to estimate, settle or
otherwise resolve its remaining liabilities and obligations, some of which are
significant, including litigations and other contingent liabilities and claims
that have not been resolved and quantified. See Note 12 - Subsequent Events
regarding the Company's pending sale of its property in the PRC.
Note 2 - Basis of Presentation:
The accompanying unaudited condensed consolidated financial statements for the
three and six months ended December 29, 2007 and for the periods ended December
18, 2008 and December 27, 2008 have been prepared in accordance with accounting
principles generally accepted in the United States of America for interim
financial information and with the instructions to Form 10-Q and Rule 10-01 of
Regulation S-X. Accordingly, they do not include
8
all of the information and footnotes required by accounting principles generally
accepted in the United States for complete financial statements. In the opinion
of management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included. Operating
results for the period September 28, 2008 to December 18, 2008 ("Second Quarter
Fiscal 2009") and the period June 29, 2008 to December 18, 2008 ("Fiscal 2009
YTD") are not necessarily indicative of the results for any other interim period
or for the full fiscal year. For comparative purposes, the quarter ended
December 29, 2007 has been defined as the ("Second Quarter Fiscal 2008") and the
six months ended December 29, 2007 has been defined as the ("Fiscal 2008 YTD").
The balance sheet at June 28, 2008 has been derived from the audited financial
statements at that date, but does not include all of the information and
footnotes required by accounting principles generally accepted in the United
States of America for complete financial statements. The Company and its
consolidated subsidiaries manage their business on the basis of one reportable
segment. For further information, refer to the consolidated financial statements
and footnotes thereto included in the Company's Annual Report on Form 10-K filed
with the Securities and Exchange Commission ("SEC") on November 7, 2008 for the
fiscal year ended June 28, 2008 ("Fiscal 2008").
The condensed consolidated financial statements for the period June 29, 2008 to
December 18, 2008 were prepared on the going concern basis of accounting, which
contemplates realization of assets and satisfaction of liabilities in the normal
course of business. Effective December 18, 2008, as a result of the Company's
shareholders' approval of the Plan of Liquidation, the Company adopted the
liquidation basis of accounting. Under the liquidation basis of accounting,
assets were adjusted to their estimated fair value and liabilities, including
estimated costs associated with carrying out the Plan of Liquidation, were
adjusted to their estimated settlement amounts.
The valuations of assets and liabilities under the liquidation basis of
accounting are based on management's estimates as of December 27, 2008. These
amounts are presented in the accompanying statement of net assets. The actual
values realized for assets and settlement of liabilities may differ materially
from the amounts estimated. Specifically, the Company's estimates of its
anticipated net proceeds from the sale of its non-cash assets and its estimates
of its anticipated settlement of liabilities and wind down costs are subject to
numerous uncertainties beyond the Company's control and do not reflect (i)
contingent liabilities that have not been quantified and are not reflected as
liabilities on the Company's statement of net assets as of December 27, 2008,
such as liabilities related to existing litigations and claims that have not
been resolved, (ii) any unknown liabilities or contingent liabilities that may
materialize in the future or (iii) further changes in the value of the auction
rate securities. Accordingly, the estimated amount of net assets in liquidation
as of December 27, 2008 may increase or decrease depending on the outcome of
future events and the actual net proceeds potentially available to be
distributed to shareholders in liquidation, if any, could be more or less than
the estimated amount of net assets in liquidation as of December 27, 2008.
9
Adjustments for Liquidation Basis of Accounting
The following adjustments were made to our net assets during the period December
19, 2008 to December 27, 2008 to reflect the liquidation basis of accounting.
($ in thousands)
As of As of
December 19, December 27,
2008 Change 2008
------------ -------- ------------
Increase to reflect the estimated settlement $ 3,035 $ -- $ 3,035
amount of certain liabilities
Increase to reflect estimated net realizable
value of certain real estate properties 976 -- 976
Decrease to reflect estimated fair value of
certain assets (484) -- (484)
------- ------- -------
$ 3,527 $ -- $ 3,527
======= ======= =======
Reserve for Estimated Costs during the Period of Liquidation
Under the liquidation basis of accounting, the Company is required to estimate
the costs associated with executing the Plan of Liquidation. These amounts can
vary significantly due to, among other things, the timing of and costs
associated with winding down operations, monetizing non-cash assets, discharging
known and contingent liabilities, dissolving the Company and its U.S. and
foreign subsidiaries and retaining personnel, professionals and other third
parties to implement and complete the wind down and liquidation. These future
costs have been estimated as of December 27, 2008 and are expected to be paid
out over the liquidation period.
Estimated costs during the liquidation period include the following:
($ in thousands)
As of As of
December 19, December 27,
2008 Change 2008
------------ -------- ------------
Severance $ 4,201 $ -- $ 4,201
Net loss during liquidation period 4,129 158 4,287
Reserves and contractual
obligations 3,298 -- 3,298
------- ------- -------
$11,628 $ 158 $11,786
======= ======= =======
Note 3 - Significant Customers:
During the Second Quarter Fiscal 2009 and Fiscal 2009 YTD, the Company's sales
to Walgreen Co. ("Walgreens") and sales to Wal-Mart Stores, Inc. ("Wal-Mart"),
on a dollar basis, decreased as compared to the Second Quarter Fiscal 2008 and
Fiscal 2008 YTD, respectively, although sales to Walgreens as a percentage of
the Company's total net sales increased quarter-over-quarter and year to
date-over-year to date. The Second Quarter Fiscal 2009 and Fiscal 2009 YTD
decreases in sales to Walgreens and Wal-Mart were primarily attributable to a
decrease in sales of single-use cameras and, to a lesser extent, a decrease in
sales of traditional film cameras.
10
The following table illustrates each significant customer's net sales as a
percentage of consolidated net sales during the Second Quarter Fiscal 2009 and
the Second Quarter Fiscal 2008.
Percent of Net Sales
--------------------
For the quarter ended For the six months ended
------------------------------- ------------------------------
December 18, December 29, December 18, December 29,
2008 2007 2008 2007
------------ ------------ ------------ ------------
Wal-Mart 26.1% 38.8% 25.3% 37.7%
Walgreens 33.6% 17.3% 24.2% 16.6%
------------ ------------ ------------ ------------
Total 59.7% 56.1% 49.5% 54.3%
============ ============ ============ ============
Note 4 - Summary of Significant Accounting Policies:
Principles of Consolidation
The accompanying condensed consolidated financial statements have been prepared
on the liquidation basis of accounting in conformity with generally accepted
accounting principles in the United States of America and include the accounts
of the Company. All significant intercompany balances and transactions have been
eliminated.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles in the United States of America 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. The more
significant of the Company's estimates includes realizability of auction rate
securities and the Company's property in the PRC, costs and settlement amounts
associated with the Plan of Liquidation, sales returns and allowances, provision
for bad debts, inventory valuation charges, realizability of intangibles,
realizability of deferred tax assets, and accounting for litigation and
settlements, among others.
11
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, European Euro, British Pound
Sterling, PRC Renminbi, Hong Kong Dollar and the Japanese Yen. Although certain
net sales to customers and purchases of certain components and services are
transacted in local currencies, each of the Company's foreign subsidiaries
purchases substantially all of its finished goods inventories in U.S. Dollars.
Therefore, the Company has determined the U.S. Dollar is the functional currency
for all of its subsidiaries. The accounting records for subsidiaries that are
maintained in a local currency are remeasured into the U.S. Dollar. Accordingly,
most non-monetary balance sheet items and related income statement accounts are
remeasured from the applicable local currency to the U.S. Dollar using average
historical exchange rates, producing substantially the same result as if the
entity's accounting records had been maintained in the U.S. Dollar. Adjustments
resulting from the remeasurement process are recorded into earnings. Gains or
losses resulting from foreign currency transactions and remeasurement are
included in "Other income, net" in the accompanying consolidated statements of
operations. Net foreign currency losses of approximately $0.1 million and $0 are
included in "Other income, net" for each of the Second Quarter Fiscal 2009 and
the Second Quarter Fiscal 2008, respectively, in the accompanying condensed
consolidated statements of operations. Net foreign currency losses of
approximately $0.2 million and $0.1 million are included in "Other income, net"
for each of the Fiscal 2009 YTD and the Fiscal 2008 YTD, respectively, in the
accompanying condensed consolidated statements of operations.
Hedging Activities
During the Second Quarter Fiscal 2009 and the Second Quarter Fiscal 2008, the
Company had no forward exchange contracts or other derivatives outstanding and
did not participate in any other type of hedging activities.
Fair Value of Financial Instruments
Effective June 29, 2008, we adopted SFAS No. 157, "Fair Value Measurements"
(SFAS 157). SFAS 157 defines fair value, establishes a framework for measuring
fair value in accordance with accounting principles generally accepted in the
United States, and expands disclosure requirements about fair value
measurements. In accordance with FASB Staff Position FAS 157-2, "Effective Date
of FASB Statement No. 157" (FSP 157-2), we deferred the adoption of SFAS 157 for
our nonfinancial assets and nonfinancial liabilities, except those items
recognized or disclosed at fair value on an annual or more frequent recurring
basis. The adoption of SFAS 157 did not have a material impact on our fair value
measurements.
We estimate the fair market value of financial instruments through the use of
public market prices, quotes from financial institutions and other available
information. Judgment is required in interpreting data to develop estimates of
market value and, accordingly, amounts are not necessarily indicative of the
amounts that we could realize in a current market exchange. Short-term financial
instruments, including cash and cash equivalents, accounts and notes receivable,
short-term borrowings, accounts payable and other liabilities, consist primarily
of instruments without extended maturities, the fair value of which, based on
management's estimates, equaled their carrying values. See Note 6 - Investments.
Restricted Cash
As of December 27, 2008, the Company had a cash deposit as security in the
amount of $1.1 million for borrowings outstanding under its revolving demand
financing facilities. See Note 8 - Borrowings and Financing Facilities.
Inventories
Inventories, consisting of raw materials, components, work-in-process and
finished goods, are stated at the lower of cost or market value and are
determined on a first-in, first-out basis. Work-in-process and component
inventory costs include materials, labor and manufacturing overhead. The Company
records lower of cost or market value adjustments based upon changes in market
pricing, customer demand, technological developments or other economic factors
and for on-hand excess, obsolete or slow-moving inventory. See Note 7 -
Inventories.
12
Assets Held For Sale
At June 28, 2008, the Company's "Assets Held for Sale" in the accompanying
condensed consolidated statement of net assets and balance sheet consists of
certain land, building, and improvements held for sale. The certain land,
building, and improvements met the criteria to be considered held for sale under
Statement of Financial Accounting Standards ("SFAS") No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets at December 27, 2008 and June 28,
2008. On February 6, 2009, the Company entered into a contract to sell these
assets and anticipates the closing of the sale within the next six months. See
Note 12 - Subsequent Events regarding the Company's pending sale of its property
in the PRC.
Impairment of Long-Lived and Other Assets
For dates prior to December 18, 2008, in accordance with SFAS No. 144, the
Company evaluated whether events and circumstances have occurred that provide
indications of impairment. The Company records an impairment loss when
indications of impairment are present and when the undiscounted cash flows
estimated to be generated by those assets are less than the assets' carrying
amounts. The Company performed an impairment test by summarizing the
undiscounted cash flows expected to result from the use and eventual sale of its
long-lived assets. If the sum of the undiscounted cash flows exceeds the
carrying values of these assets, then the Company concludes these carrying
values are recoverable. As of December 27, 2008, based on the approval of the
Plan of Liquidation by the Company's shareholders', the Company stated its
long-lived and other assets and liabilities on a liquidation basis of accounting
and any change in value was recorded as an adjustment for liquidation basis of
accounting in the statement of changes in net assets for the period December 19,
2008 to December 27, 2008.
Revenue Recognition
The Company recognized revenue in accordance with Staff Accounting Bulletin
("SAB") No. 101, Revenue Recognition in Financial Statements, as amended by SAB
No. 104, Revenue Recognition: Corrected Copy, when title and risk of loss are
transferred to the customer, the sales price is fixed or determinable,
persuasive evidence of an arrangement exists, and collectability is probable.
Title and risk of loss generally transfer when the product is delivered to the
customer or upon shipment, depending upon negotiated contractual arrangements.
Sales are recorded net of anticipated returns which the Company estimates based
on historical rates of return, adjusted for current events as appropriate, in
accordance with Statement of Financial Accounting Standard No. 48, Revenue
Recognition When Right of Return Exists ("SFAS No. 48").
Sales Allowances
The Company entered into arrangements to offer certain pricing discounts and
allowances that do not provide an identifiable separate benefit or service. In
accordance with Emerging Issues Task Force Issue No. 01-09, Consideration Given
by a Vendor to a Customer (Including a Reseller of the Vendor's Products) ("EITF
Issue No. 01-09"), the Company recorded these pricing discounts and allowances
as a reduction of sales. Advertising and promotional costs, which include
advertising allowances and other discounts, were expensed as incurred. In
accordance with EITF Issue No. 01-09, which addresses the statement of
operations classification of consideration between a vendor and a retailer, the
Company recorded certain variable selling expenses, including advertising
allowances, other discounts and other allowances, as a reduction of sales. The
Company entered into arrangements to provide certain free products. In
accordance with EITF Issue No. 01-09, the Company recorded the cost of free
products ratably into cost of products sold based upon the underlying revenue
transaction.
Share-Based Compensation Expense
Effective July 3, 2005, the Company adopted the fair value recognition
provisions of SFAS No. 123R, Share-Based Payment, as interpreted by Financial
Accounting Standards Board ("FASB") Staff Positions No. 123R-1, 123R-2, 123R-3,
123R-4, 123R-5 and 123R-6. Share-based compensation expense of approximately
$2,000 and $1,000 is included in income (loss) before income taxes for the
Second Quarter Fiscal 2009 and the Second Quarter Fiscal 2008, respectively.
13
During Fiscal 2009 YTD and Fiscal 2008 YTD, the Company recorded approximately
$8,000 and $6,000, respectively, of share-based compensation expense.
The total income tax benefit of $0 was recognized in the consolidated statement
of operations for the share-based compensation arrangements for each of the
Second Quarter Fiscal 2009, the Second Quarter Fiscal 2008, Fiscal 2009 YTD and
Fiscal 2008 YTD. The Company considers all of its share-based compensation
expense as a component of general and administrative expenses in the
accompanying consolidated statements of operations. In addition, no amount of
share-based compensation was capitalized as part of capital expenditures or
inventory for each of the Second Quarter Fiscal 2009, the Second Quarter Fiscal
2008, Fiscal 2009 YTD and Fiscal 2008 YTD.
Income Taxes
The provision for income taxes was 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 bases of
assets and liabilities and are measured using the enacted tax rates and laws
that will be in effect when the differences are expected to reverse. Deferred
income tax provisions and benefits are based on the changes in the net deferred
tax asset or liability from period to period. Valuation allowances are
established when necessary to reduce deferred tax assets to the amount expected
to be realized.
Comprehensive Income (Loss)
Comprehensive income (loss) in accordance with SFAS No. 130, Reporting
Comprehensive Income ("SFAS No. 130") includes net income (loss) adjusted for
certain revenues, expenses, gains and losses that are excluded from net income
(loss) under accounting principles generally accepted in the United States of
America. During the Second Quarter Fiscal 2009 and the Second Quarter Fiscal
2008, the Company's comprehensive loss was $(2.7) million and $(2.2) million,
respectively. During Fiscal 2009 YTD and Fiscal 2008 YTD, the Company's
comprehensive loss was $(1.4) million and $(4.0) million, respectively. During
the Second Quarter Fiscal 2009, the Company recorded other comprehensive income
of $0.8 million related the sale of an auction rate security.
Loss Per Share
Basic and diluted loss per share are calculated in accordance with SFAS No. 128,
Earnings per Share ("SFAS No. 128"). All applicable loss per share amounts have
been presented in conformity with SFAS No. 128 requirements. During the Second
Quarter Fiscal 2009 and the Second Quarter Fiscal 2008, the Company issued no
shares of Common Stock on the exercise of stock options. During Fiscal 2009 YTD
and Fiscal 2008 YTD, the Company issued no shares of Common Stock on the
exercise of stock options. For both the Second Quarter Fiscal 2009 and the
Second Quarter Fiscal 2008, there were no potentially dilutive securities. In
Fiscal 2009 YTD and Fiscal 2008 YTD potentially dilutive securities were
comprised of stock options to purchase 1,328 and 0 shares of Common Stock,
respectively, that were not included in the calculation of diluted loss per
share because their impact was antidilutive. In Fiscal 2008 YTD, the weighted
average effect of 66,202 shares for which delivery had been deferred under the
Company's Deferred Delivery Plan was included in the denominator of both basic
and diluted loss per share calculations. The 66,202 deferred shares were
delivered on July 2, 2007 and included in the total shares outstanding during
Fiscal 2009 YTD and Fiscal 2008 YTD, respectively.
Note 5 - Supplemental Cash Flow Information:
Non-cash Investing Activities:
($ in thousands)
Deferred Share Arrangement Fiscal 2008 YTD
-------------------------- ---------------
Deferred share arrangement obligation to participant $(413)
Common stock received and held in trust 413
-----
$ --
=====
14
Note 6 - Investments
At December 27, 2008 and June 28, 2008, the Company's "Investments" as presented
in the accompanying consolidated statement of net assets and balance sheet
consisted of auction rate debt securities and are considered to be
available-for-sale securities. As of December 27, 2008 and June 28, 2008, the
Company has recorded unrealized losses of $4.2 million and $5.1 million,
respectively, related to its auction rate debt securities. On October 17, 2008,
the Company consented to tender $2.1 million in par value of its auction rate
securities in connection with a tender offer by Leon Higher Education Authority,
Inc. that has Brazos Higher Education Service Corporation, Inc. acting as its
master servicer. The tender offer required certain levels of participation by
auction rate securities holders. The tender offer did not attain the required
level of participation and expired on December 4, 2008. On December 12, 2008, in
order to fund liquidation related items, the Company sold $2.7 million in par
value of its auction rate securities for $2.3 million that resulted in a
realized loss of $0.4 million included in "Other income, net" in the
accompanying condensed consolidated statements of operations. In connection with
the sale of these auction rate securities, the Company recorded a reduction in
accumulated other comprehensive loss that resulted in an approximate $0.8
million increase to stockholders' equity. The Company has experienced no
redemptions of its auction rate securities subsequent to December 27, 2008.
Currently, the Company has the ability and intent to hold its auction rate
securities until a recovery of par value and does not consider its auction rate
securities to be other-than-temporarily impaired at December 27, 2008. Fair
market value of auction rate securities is based primarily upon market
transactions and bids on identical or similar securities in this inactive market
(Level 3 inputs in accordance with SFAS 157).
Realized gains and losses, interest and dividends are classified as investment
income in "Other income, net" in the accompanying condensed consolidated
statements of operations. For the Second Quarter Fiscal 2009 and Second Quarter
Fiscal 2008, included in "Other income, net" in the accompanying condensed
consolidated statements of operations are approximately $0.3 million and $0.5
million, respectively, of investment income related to investments. For Fiscal
2009 YTD and Fiscal 2008 YTD, included in "Other income, net" in the
accompanying condensed consolidated statements of operations are approximately
$0.6 million and $0.1 million, respectively, of investment income related to
investments.
The cost basis, gross unrealized gains and losses and fair value for these
securities are as follows:
($ in millions)
December 27, 2008 June 28, 2008
----------------- ----------------------------
Fair Cost Unrealized Fair
Value Basis Loss Value
----------------- ----------------------------
Auction rate securities $14.7 $23.6 $5.1 $18.5
================= ============================
The contractual maturity of the auction rate securities available for sale at
December 27, 2008 is greater than ten years.
Note 7 - Inventories:
Inventories consist of the following:
($ in thousands)
December 27, June 28,
2008 2008
------------ --------
Raw materials, components, and $ 160 $
work-in-process 4,866
Finished goods 2,126 5,565
------ -------
Total inventories $2,286 $10,431
====== =======
15
As of December 27, 2008, the Company stated its inventories on a liquidation
basis of accounting and any change in value was recorded as an adjustment for
liquidation basis accounting in the statement of changes in net assets for the
period December 19, 2008 to December 27, 2008.
Note 8 - Borrowings and Financing Facilities:
Hong Kong Financing Facilities
Concord Camera HK Limited ("CCHK"), the Company's Hong Kong subsidiary, has an
approximate US$1.0 million demand financing facility with Dah Sing Bank, Limited
("Dah Sing") and a guarantee facility of 380,000 Euros (equal to approximately
US$0.5 million) with The Hongkong and Shanghai Banking Corporation ("HSBC"). On
December 15, 2008, at the request of CCHK due to the anticipated approval by the
shareholders of the Company of the Plan of Liquidation, CCHK and HSBC entered
into an agreement canceling an import facility which provided $4.7 million in
borrowing capacity to the Company. As security for the financing facilities,
among other things, CCHK initially provided to HSBC and Dah Sing pledged
deposits in the amount of approximately US$5.2 million and US$1.0 million,
respectively. As of December 27, 2008, the amounts of the pledged deposits to
HSBC and Dah Sing were reduced to $1.0 million and $0.1 million, respectively,
and will continue to be reduced as the amounts outstanding under these financing
facilities are reduced. The HSBC financing facility is subject to review by HSBC
by June 15, 2009 and the Dah Sing financing facility is subject to review by Dah
Sing at any time.
The Dah Sing facilities were used by CCHK for opening letters of credit, draft
loans, negotiating export letters of credit with a letter of guarantee, outward
bills loans, trust receipts, invoice financing, packing loans and/or advances
against receivables. The Dah Sing facilities bear interest at variable rates, as
follows: 1.5% per annum over the Hong Kong Interbank Offered Rate on facilities
denominated in Hong Kong Dollars; 1.5% per annum over the London Interbank
Offered Rate on facilities denominated in U.S. Dollars; and 1.5% per annum over
Dah Sing's Base Rate on facilities denominated in any other foreign currency.
The HSBC facilities bear interest at variable rates, as follows: 1.75% over the
Hong Kong Interbank Offered Rate on import loans denominated in Hong Kong
Dollars and 1.75% over the Singapore Interbank Offered Rate for transactions
denominated in currency other than the Hong Kong Dollar.
United States Financing Facilities
On November 3, 2008, Concord Keystone Sales Corp. ("Keystone"), the Company's
United States subsidiary, received a notice from The CIT Group/Commercial
Services, Inc. ("CIT") that an event of default existed under Keystone's $15
million secured revolving line of credit with CIT (the "CIT Facility") as a
result of the Company's press release on October 30, 2008 that it has elected to
wind down operations and liquidate assets.
On December 16, 2008, Keystone received a notice from CIT that CIT had
terminated the CIT Facility, effective as of December 16, 2008, and that all
obligations under the CIT Facility were now due and payable. As a result of
CIT's termination of the CIT Facility, on December 18, 2008, the Company repaid
the CIT Facility in full and placed $100,000 in a reserve account to cover any
returned or dishonored items for which repayment is demanded from CIT during the
60-day period following the date of the December 16, 2008 notice. As of February
18, 2009, Keystone has received the entire $100,000 amount back from CIT.
Effective April 17, 2008, the Company entered into an Express Creditline Loan
Agreement (the "Loan Agreement") with Citigroup Global Markets, Inc.
("Citigroup") for a $9 million secured revolving credit line (the "Citigroup
Facility"). Advances under the Citigroup Facility may be used by the Company to
finance business operations and general working capital and other corporate
business purposes, including, but not limited to, implementation of strategic
alternatives, distributions to shareholders and/or any other uses of cash as
determined by the Company and cannot be used to purchase, carry or trade in
securities, or reduce or retire indebtedness incurred to purchase, carry or
trade in securities. In addition to the $9 million credit line for advances, the
Citigroup Facility provided for the accrual of up to $1 million of interest,
resulting in an aggregate credit limit of $10 million (the "Loan Limit") under
the Citigroup Facility. The Citigroup Facility is secured by a first priority
lien and security interest in the Company's remaining auction rate securities
(the "Collateral"). Effective October 20, 2008, the Loan Limit was increased to
$10,925,000. The Loan Limit has decreased
16
and is anticipated to decrease further as the Company sells its auction rate
securities and the proceeds from such sales are used to pay down the Citigroup
Facility.
Under the terms of the Loan Agreement, interest on amounts outstanding under the
Citigroup Facility was payable monthly at the Open Federal Funds rate plus 1.50%
per annum from April 17, 2008 through October 21, 2008. Effective October 21,
2008, the interest rate was increased to the Open Federal Funds rate plus 3.25%
per annum. Citigroup may, in its sole discretion and without cause, demand full
or partial payment of any outstanding balance under the Citigroup Facility or
reduce the Loan Limit at any time. The Loan Agreement may be terminated by
either party upon thirty calendar days' prior written notice to the other party.
At December 27, 2008 and June 28, 2008, the Company had $0 and $3.2 million,
respectively, in short-term borrowings outstanding under the Hong Kong financing
facilities described above. The weighted average borrowing rates on the
short-term borrowings as of December 27, 2008 and June 28, 2008, were 6.5% and
6.3%, respectively.
At December 27, 2008 and June 28, 2008, the Company had $9.2 million and $14.4
million, respectively, in short-term borrowings outstanding under the United
States Financing Facilities. The weighted average borrowing rates on the
short-term borrowings as of December 27, 2008 and June 28, 2008 were 1.6% and
4.7%, respectively.
At December 27, 2008 and June 28, 2008, the Company had $0.1 million and $1.5
million, respectively, in letters of credit outstanding, which were issued
primarily to certain suppliers to guarantee payment for our purchase orders with
such suppliers. The letters of credit are issued under the Company's import
facilities that have been granted to CCHK.
Note 9 - Commitments and Contingencies:
License and Royalty Agreements
On May 10, 2004, the Company entered into a twenty-year, worldwide trademark
license agreement with Jenoptik AG for the exclusive use of the Jenoptik brand
name and trademark on non-professional consumer imaging products including, but
not limited to, digital, single-use and traditional cameras, and other imaging
products and related accessories. The license agreement provides for a royalty
of one-half of one percent (0.5%) of net sales of non-professional consumer
imaging products bearing the JENOPTIK brand name for the first ten (10) years of
the license and a royalty of six-tenths of one percent (0.6%) for the second ten
(10) years of the license. There are no minimum guaranteed royalty payments. In
August 2008, the Company entered into an agreement with Jenoptik AG to terminate
the Jenoptik trademark license agreement effective January 1, 2010 in exchange
for Jenoptik AG's waiver of certain royalty payments and reimbursement to the
Company of approximately $1.1 million of the upfront license fee paid by the
Company upon entering into the license agreement in 2004. The reimbursement of
$1.1 million was recorded in "Other income, net" in the accompanying
consolidated statement of operations during the First Quarter Fiscal 2009. As of
December 27, 2008, the value of the license was reduced to $0 and was recorded
as an adjustment for liquidation basis of accounting in the statement of changes
in net assets for the period December 19, 2008 to December 27, 2008.
Effective January 1, 2001, the Company entered into a new twenty-year license
agreement with FujiFilm Corporation ("Fuji"). Under the new license agreement,
Fuji granted the Company a worldwide non-exclusive license (excluding Japan
until January 1, 2005) to use certain of Fuji's patents and patent applications
related to single-use cameras. The license extends until the later of the
expiration of the last of the licensed Fuji patents or February 26, 2021. In
consideration of the license, the Company agreed to pay a license fee and
certain royalty payments to Fuji. During Fiscal 2008, the Company recorded an
impairment charge of $3.0 million to lower the carrying value of the Fuji
license. The Company previously amortized this asset based upon quantities of
units produced. As of December 27, 2008, the carrying value of the Fuji license
was $0. In conjunction with the initial recording of the Fuji license asset, the
Company also recorded a liability equal to the present value of the future
annual license fee payments that was included in licensing related obligations
in "Other liabilities" in the accompanying consolidated balance sheet at June
28, 2008. As of December 27, 2008, the amount of the license related obligation
was increased to the undiscounted value of the remaining annual license fee
payments and recorded as an adjustment for liquidation basis accounting in the
statement of changes in net assets for the period December 19, 2008 to December
27, 2008.
17
On August 26, 2002, the Company entered into two Polaroid licensing agreements.
The two license agreements provided it with the exclusive (with the exception of
products already released by Polaroid into the distribution chain), worldwide
use of the Polaroid brand trademark in connection with the manufacture,
distribution, promotion and sale of single-use and traditional film based
cameras, including zoom cameras and certain related accessories. The license
agreements did not include instant or digital cameras. Each license agreement
included an initial term expiring on February 1, 2006, provided the Company the
right to renew the license under the same economic terms for an additional
three-year period and provided for the payment by the Company of $3.0 million of
minimum royalties, or $6.0 million in total for both license agreements, which
were fully credited against percentage royalties. On November 28, 2005, the
Company exercised its right to renew the single-use camera license agreement
with Polaroid for an additional three-year term expiring on February 1, 2009 in
accordance with the same economic terms included in the original agreement.
Pursuant to the terms of the single-use camera license agreement, as of February
1, 2008, the Company had paid the $3.0 million of minimum royalties and recorded
the payment as a prepaid asset. The Company amortizes this asset based upon a
percentage of net sales of Polaroid branded single-use cameras during the
three-year renewal term expiring February 1, 2009. In January 2006, the Company
entered into a new license agreement with Polaroid providing it with the
exclusive, worldwide use of the Polaroid brand trademark in connection with the
manufacture, distribution, promotion and sale of traditional film cameras. The
new license agreement was for a term of three years expiring on January 31, 2009
and provided for the payment by the Company of $50,000 of minimum royalties on
or before October 31, 2006, which was fully credited against percentage
royalties during the first year of the term. There were no minimum guaranteed
royalty payments under the traditional film license agreement after the first
year of the term. The traditional film and single-use camera licenses were not
renewed and expired on January 31, 2009 and February 1, 2009, respectively.
Additionally, the Company has other license and royalty agreements that require
the payment of royalties based on the manufacture and/or sale of certain
products. Its license and royalty agreements expire at various dates through
Fiscal 2023. Total amortization and royalty expense for all licensing and
royalty agreements for the Second Quarter Fiscal 2009 and the Second Quarter
Fiscal 2008, was $0.7 million and $1.2 million, respectively. Total amortization
and royalty expense for all licensing and royalty agreements for Fiscal 2009 YTD
and Fiscal 2008 YTD, was $2.0 million and $2.8 million, respectively.
Intellectual Property Claims
From time to time, the Company receives patent infringement claims which it
analyzes and, if appropriate, takes action to avoid infringement, settle the
claim or negotiate a license. Those claims for which legal proceedings have been
initiated against the Company are discussed in Note 10 - Litigation and
Settlements. The Company has also received notifications from two entities, one
of which was a significant customer, alleging that certain of the Company's
digital cameras infringe upon those entities' respective patents. The Company
has engaged in discussions with these entities regarding resolution of the
claims.
Based on the Company's initial assessment of these claims, infringement of one
or more patents is probable if the patents are valid. Based upon the licensing
discussions to date, the Company preliminarily estimates the potential royalties
due to these two claimants for digital camera sales through December 27, 2008 to
be between $0 and approximately $6.7 million in the aggregate. The actual
royalty amounts, if any, for past and future sales are dependent upon the
outcome of the negotiations. The Company has notified certain of its suppliers
of its right to be indemnified by the suppliers if it is required to pay
royalties or damages to either claimant. The Company is unable to reasonably
estimate the amount of the potential loss, if any, within the range of estimates
relating to these claims. Accordingly, the Company has not recorded any
liabilities related to these claims as of December 27, 2008.
PRC Processing Agreement
On November 1, 2008, in connection with the recommendation by our Board of our
dissolution and the adoption of the Plan of Liquidation, we provided the
required twelve months notice of termination of our processing agreement with
the PRC governmental entities, which allowed us to operate in the PRC.
18
Purchase Commitments
At December 27, 2008, the Company had approximately $50,000 in non-cancelable
purchase commitments relating to the procurement of raw materials, components
and finished goods inventory from various suppliers. In the aggregate, such
commitments are not at prices in excess of current market values and typically
do not exceed one year.
Note 10 - Litigation and Settlements:
On October 6, 2004, a patent infringement complaint was filed by Honeywell
International, Inc. and Honeywell Intellectual Properties, Inc., against 27
defendants, including the Company, in the United States District Court for the
District of Delaware. The complaint asserted that the defendants have conducted
activities which infringe U.S. Patent No. 5,280,371, entitled, "Directional
Diffuser for a Liquid Crystal Display." The complaint sought unspecified
damages, interest, attorneys' fees, costs of suit and unspecified other and
further relief from the court. The proceedings in this action against the
Company and other similarly situated defendants were stayed by the court pending
the resolution of the infringement actions against the liquid crystal display
manufacturers. It is too early to assess the probability of a favorable or
unfavorable outcome or the loss or range of loss, if any, and therefore, no
amounts have been accrued relating to this action. The Company has notified
several third parties of its intent to seek indemnity from such parties for any
costs or damages incurred by the Company as a result of this action.
In June 2006, St. Clair Intellectual Properties Consultants, Inc. filed a patent
infringement complaint against 22 defendants, including the Company, in the
United States District Court for the District of Delaware. The complaint
asserted that the defendants conducted activities which infringe U.S. Patent
Nos. 5,138,459, 6,094,219, 6,233,010 and 6,323,899. The complaint sought
injunctive relief, unspecified damages, interest, attorneys' fees, costs of suit
and unspecified other and further relief from the court. The proceedings in this
action against the Company and the other defendants were stayed by the court
until further order of the court. On October 16, 2008, the court granted the
plaintiff's motion to lift the stay and, accordingly, the case against the
Company and the other defendants is now proceeding. It is too early to assess
the probability of a favorable or unfavorable outcome or the loss or range of
loss, if any, and, therefore, no amounts have been accrued relating to this
action. The Company will continue to assess potential claims of indemnification
against certain of its suppliers with respect to this action.
In December 2008, Raymond James & Associates, Inc. ("Raymond James") filed a
demand for arbitration against the Company with the American Arbitration
Association. The statement of claim alleges that Raymond James is entitled to a
transaction fee pursuant to its engagement letter with the Special Committee and
the Company related to the Special Committee's evaluation of strategic
alternatives for the Company as a result of the Board's recommendation to the
Company's shareholders of the dissolution of the Company and the adoption of the
Plan of Liquidation. The statement of claim seeks damages in the amount of
$425,000, interest, attorneys' fees and costs and unspecified other and further
relief from the arbitration panel. The Company intends to vigorously defend the
claim.
The Company has considered the above referenced claims in making its liquidation
related adjustments. The Company is also involved from time to time in routine
legal matters incidental to its business. Based upon available information, the
Company believes that the resolution of such matters will not have a material
adverse effect on its financial position or results of operations. The Company's
announcement and/or implementation of the Plan of Liquidation may give rise to
legal claims, which may have a material adverse effect on the Company's
financial position and results of operations.
Note 11 - Other Charges:
During the Second Quarter Fiscal 2009, the Company recorded $1.6 million in
other charges related to severance costs. During the Second Quarter Fiscal 2008,
the Company recorded total charges of $0.2 million related to severance costs
for the elimination of certain employee positions.
During Fiscal 2009 YTD and Fiscal 2008 YTD, the Company recorded charges of $1.6
million and $0.2 million, respectively, related to severance costs for the
elimination of certain employee positions.
19
Table I -- Other Charges Liability reconciles the beginning and ending balances
of the other charges liability.
(in thousands)
Other Charges Liability
-----------------------
Severance
---------
Balance as of June 28, 2008 $ 543
Charges 1,647
Reversals (1)
Payments (1,934)
-------
Balance as of December 18, 2008 $ 255
=======
Charges --
Payments --
-------
Balance as of December 27, 2008 $ 255
=======
Table II -- Other Charges presents the related expenses and their classification
in the consolidated statements of operations.
(in thousands)
Other Charges Severance
------------- ---------
Second Quarter Fiscal 2009
--------------------------
Cost of products sold $ 1,563
Selling expense --
General and administrative expense --
-------
Total $ 1,563
=======
Fiscal 2009 YTD
---------------
Cost of products sold $ 1,647
Selling expense --
General and administrative expense --
-------
Total $ 1,647
=======
Second Quarter Fiscal 2008
--------------------------
Cost of products sold $ 212
Selling expense --
General and administrative --
-------
Total $ 212
=======
Fiscal 2008 YTD
---------------
Cost of products sold $ 212
Selling expense (60)
General and administrative expense --
-------
Total $ 152
=======
20
Note 12 - Subsequent Events:
Contract for Sale of Property in the PRC
On February 6, 2009, CCHK entered into various agreements (collectively, the
"Agreement") with Bao On Joint Stock Company ("Bao") providing for the sale of
CCHK's registered land and buildings in the PRC and certain temporary buildings
and equipment and facilities located thereon. The purchase price is
RMB34,500,000, or approximately US$5,047,180 at the exchange rate in effect on
February 12, 2009.
The terms of the Agreement provide that Bao is responsible for all taxes
attributable to the sale of the registered land and buildings and CCHK is
responsible for all taxes attributable to the sale of the temporary buildings,
equipment and facilities. Upon signing the Agreement, Bao paid RMB2,500,000, or
approximately US$365,738 at the exchange rate in effect on February 12, 2009,
into an account designated by CCHK as a deposit, which will be used to satisfy
Bao's tax liability attributable to the sale of the registered land and
buildings. Pursuant to the Agreement, on February 20, 2009, Bao paid the
RMB34,500,000 purchase price into an account designated by CCHK. Bao's
obligation to proceed with the transaction is not subject to any financing
conditions. The sale will be completed and the RMB34,500,000 purchase price will
be released to CCHK upon the local government authorities completing the
transfer of the real estate certificates to Bao.
The RMB34,500,000 purchase price includes a leaseback of the land and buildings
to CCHK for up to six months, at no additional cost to CCHK, to complete the
wind down and liquidation process in the PRC.
NASDAQ Delisting
In connection with the approval of the Plan of Liquidation by the Company's
shareholders at the Annual Meeting, on January 30, 2009, the Company notified
NASDAQ of its intent to delist its common stock from the NASDAQ Global Market
and on February 9, 2009, the Company filed with the SEC and NASDAQ a Form 25
relating to the delisting of its common stock from the NASDAQ Global Market.
Accordingly, trading of the Company's common stock on the NASDAQ Global Market
was suspended on February 9, 2009 and its common stock was delisted from the
NASDAQ Global Market on or about February 19, 2009.
Corporate Dissolution
In connection with the approval of the Plan of Liquidation by the Company's
shareholders at the Annual Meeting, on January 30, 2009, the Company initiated
the process to dissolve the Company's corporate existence in the State of New
Jersey.
Change-in-Control Payment
In connection with the approval of the Plan of Liquidation by the Company's
shareholders at the Annual Meeting, on January 15, 2009, Ira B. Lampert,
Chairman, President and Chief Executive Officer received $500,000 as a
change-in-control payment pursuant to the terms of his employment agreement. The
change-in-control payment amount is included in the reserve for estimated costs
during the liquidation period on the consolidated statement of net assets as of
December 27, 2008.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The following discussion and analysis should be read in conjunction with the
condensed consolidated financial statements and the notes to such financial
statements included elsewhere in this Quarterly Report on Form 10-Q, our Annual
Report on Form 10-K for Fiscal 2008 filed with the SEC on November 7, 2008
("Form 10-K") and our Definitive Proxy Statement for the 2008 Annual
Shareholders' Meeting (the "Annual Meeting") filed with the SEC on November 7,
2008.
21
Plan of Dissolution and Liquidation
On December 18, 2008, at our Annual Meeting, our shareholders approved our
dissolution and plan of dissolution and liquidation (the "Plan of Liquidation").
We marketed and sold easy-to-use 35mm single-use and traditional film cameras
that were predominately designed, developed, manufactured and assembled at our
manufacturing facilities in the Peoples Republic of China ("PRC"). In fiscal
2006, we significantly de-emphasized the sale of digital cameras and, in fiscal
2007, we exited the digital camera market. We sold our private label and
brand-name products to our customers worldwide either directly or through
third-party distributors.
On August 14, 2006, our Board of Directors (the "Board") established a committee
(the "Special Committee") consisting of three independent directors, to
investigate, evaluate and/or analyze strategic alternatives for us and make any
recommendations to the Board with respect to such strategic alternatives that
the Special Committee determined to be appropriate. The Special Committee
considered several alternative strategies, including: (i) continuing current
operations; (ii) making strategic acquisitions; (iii) a sale or other
disposition of all or a significant part of us or our business; (iv) a
"going-private" transaction; and (v) our liquidation. The Special Committee
authorized its financial advisor and management to conduct discussions and
negotiate with potential strategic and financial investors who expressed an
interest in making an investment in or acquiring us. However, efforts by the
Special Committee's financial advisor and management to engage in a transaction
with any of these third parties were not successful.
Throughout fiscal 2008, we assessed our ability to continue manufacturing,
marketing and/or selling single-use cameras. We determined that it would not be
advisable to continue our business as a small public company based on a number
of factors, including the continuing single-use and traditional film camera
market decline, both in unit volumes and selling prices, the increased cost of
certain components and labor, the significant competition in this industry, the
lack of market acceptance of our new non-camera products, the likelihood that we
would continue to incur significant net losses for an extended period of time,
and, that even if successful, the realization of significant returns on our
investments in the film camera business or new products was uncertain and could
take years to achieve.
Accordingly, on October 29, 2008, based on the Special Committee's review of the
strategic alternatives and the Special Committee's recommendation, the Board
recommended to our shareholders our dissolution and the adoption of the Plan of
Liquidation.
The Plan of Liquidation contemplates an orderly wind down of our business and
operations, the monetization of our non-cash assets, the satisfaction or
settlement of our remaining liabilities and obligations and one or more
distributions to our shareholders. During the wind down period, we will
terminate our remaining employees, dissolve our legal entities, sell and
monetize our non-cash assets, satisfy or settle our remaining liabilities and
obligations, including contingent liabilities and claims, make one or more
distributions to our shareholders of cash available for distribution and delist
our shares from the NASDAQ Global Market ("NASDAQ"). See Note 12 - Subsequent
Events in the accompanying Notes to the Condensed Consolidated Financial
Statements regarding our initiating the dissolution process and voluntarily
delisting our shares from NASDAQ.
The execution of the Plan of Liquidation will be completed as soon as
practicable. However, we are currently unable to predict the amount of time that
will be required to complete the Plan of Liquidation or the precise timing or
amount of any distributions to shareholders pursuant to the Plan of Liquidation.
The amount and timing of any distributions will be determined by the Board and
will depend upon our ability to monetize our non-cash assets, including, but not
limited to, auction rate securities that we have been unable to sell due to the
recent disruptions in the credit markets and for which we have reduced the
carrying value by approximately $4.2 million to approximately $14.7 million as
of December 27, 2008 and our property in the PRC where the real estate market
has recently experienced significant declines due to the worldwide financial
crisis, and to estimate, settle or otherwise resolve our remaining liabilities
and obligations, some of which are significant, including litigations and other
contingent liabilities and claims that have not been resolved and quantified.
See Note 12 - Subsequent Events in the accompanying Notes to the Condensed
Consolidated Financial Statements regarding our pending sale of our property in
the PRC.
22
Subsequent to December 27, 2008, we completed the manufacture and sale of
materials and products in inventory except for a nominal amount of raw material.
Accordingly, we expect to have only nominal net sales on a going forward basis.
We are continuing to sell and monetize our non-cash assets, satisfy or settle
our remaining liabilities and obligations, including contingent liabilities, and
terminate employees.
Liquidation Basis of Accounting
The condensed consolidated financial statements for the period June 29, 2008 to
December 18, 2008 were prepared on the going concern basis of accounting, which
contemplates realization of assets and satisfaction of liabilities in the normal
course of business. Effective December 18, 2008, as a result of the Company's
shareholders' approval of the Plan of Liquidation, the Company adopted the
liquidation basis of accounting. Under the liquidation basis of accounting,
assets were adjusted to their estimated fair value and liabilities, including
estimated costs associated with carrying out the Plan of Liquidation, were
adjusted to their estimated settlement amounts.
The valuations of assets and liabilities under the liquidation basis of
accounting are based on management's estimates as of December 27, 2008. These
amounts are presented in the accompanying statement of net assets. The actual
values realized for assets and settlement of liabilities may differ materially
from the amounts estimated. Specifically, the Company's estimates of its
anticipated net proceeds from the sale of its non-cash assets and its estimates
of its anticipated settlement of liabilities and wind down costs are subject to
numerous uncertainties beyond the Company's control and do not reflect (i)
contingent liabilities that have not been quantified and are not reflected as
liabilities on the Company's statement of net assets as of December 27, 2008,
such as liabilities related to existing litigations and claims that have not
been resolved, (ii) any unknown liabilities or contingent liabilities that may
materialize in the future or (iii) further changes in the value of the auction
rate securities. Accordingly, the estimated amount of net assets in liquidation
as of December 27, 2008 may increase or decrease depending on the outcome of
future events and the actual net proceeds potentially available to be
distributed to shareholders in liquidation, if any, could be more or less than
the estimated amount of net assets in liquidation as of December 27, 2008.
Adjustments for Liquidation Basis of Accounting
The following adjustments were made to our net assets during the period December
19, 2008 to December 27, 2008 to reflect the liquidation basis of accounting.
($ in thousands)
----------------
As of As of
December 19, December 27,
2008 Change 2008
------------ -------- ------------
Increase to reflect the estimated settlement amount
of certain liabilities $3,035 $ -- $ 3,035
Increase to reflect estimated net realizable value
of certain real estate properties 976 -- 976
Decrease to reflect estimated fair value of certain
assets (484) -- (484)
------ ------ -------
$3,527 $ -- $ 3,527
====== ====== =======
Reserve for Estimated Costs during the Period of Liquidation
Under the liquidation basis of accounting, the Company is required to estimate
the costs associated with executing the Plan of Liquidation. These amounts can
vary significantly due to, among other things, the timing of and costs
associated with winding down operations, monetizing non-cash assets, discharging
known and contingent liabilities, dissolving the
23
Company and its U.S. and foreign subsidiaries and retaining personnel,
professionals and other third parties to implement and complete the wind down
and liquidation. These future costs have been estimated as of December 27, 2008
and are expected to be paid out over the liquidation period.
Estimated costs during the liquidation period include the following:
($ in thousands)
As of As of
December 19, December 27,
2008 Change 2008
------------ -------- ------------
Severance $ 4,201 $ -- $ 4,201
Net loss during liquidation period 4,129 158 4,287
Contingency reserves and
contractual obligations 3,298 -- 3,298
------- ------ -------
$11,628 $ 158 $11,786
======= ====== =======
NASDAQ Listing Compliance
In connection with our shareholder's approval of the Plan of Liquidation at the
Annual Meeting, on January 30, 2009, we notified the NASDAQ Stock Market of our
intent to delist our common stock from NASDAQ and, on February 9, 2009, we filed
with the Securities and Exchange Commission ("SEC") and the NASDAQ Stock Market
a Form 25 relating to the delisting of our common stock from NASDAQ.
Accordingly, the trading of our common stock on NASDAQ was suspended on February
9, 2009 and our common stock was delisted from NASDAQ on or about February 19,
2009.
On November 10, 2008, we received a notice from NASDAQ indicating that our
filing delinquency resulting from our delay in filing our Form 10-K had been
cured and therefore, our securities would remain listed on the NASDAQ Global
Market. We were previously notified by NASDAQ that our securities were subject
to delisting due to our failure to file our Form 10-K. On November 7, 2008, we
filed our Form 10-K with the SEC and NASDAQ, thereby regaining compliance with
all requirements for continued listing on the NASDAQ Global Market.
In connection with our dissolution in accordance with the Plan of Liquidation,
following the filing of our Certificate of Dissolution, our stock transfer books
will be closed, after which transfers of our common stock will no longer be
recorded, and our common stock and stock certificates evidencing the common
stock will no longer be assignable or transferable on our books except by will,
intestate succession or operation of law.
Critical Accounting Policies
The discussion and analysis of our financial condition and results of operations
are based upon our consolidated financial statements, which have been prepared
in conformity with accounting principles generally accepted in the United States
of America. The preparation of these consolidated financial statements requires
management to make estimates and assumptions that affect the amounts reported in
the condensed consolidated financial statements and the accompanying notes.
Since June 28, 2008, there have been no significant changes to the assumptions
and estimates related to those critical accounting policies. See the critical
accounting policies disclosed in our Form 10-K.
Results of Operations
Period Ended December 18, 2008 Compared to the Quarter Ended December 29, 2007
Net Sales
Net sales of our products for the period September 28, 2008 to December 18, 2008
("second quarter of fiscal 2009 ") were $12.9 million, a decrease of $5.5
million, or 29.9%, as compared to net sales for the second quarter of fiscal
2008. The decrease in net sales was due to a reduction in sales of single-use
and traditional film cameras.
24
Net sales from our operations in the Americas for the second quarter of fiscal
2009 were $9.1 million, a decrease of $4.3 million, or 32.1%, as compared to the
second quarter of fiscal 2008. The decrease in net sales in the Americas was due
primarily to a reduction in sales of single-use and, to a lesser extent,
traditional film cameras to our significant customers.
Net sales from our operations in Europe for the second quarter of fiscal 2009
were $2.2 million, a decrease of $1.0 million, or 31.3%, as compared to the
second quarter of fiscal 2008. The decrease in net sales in Europe was due
primarily to a decrease in sales of single-use cameras.
Net sales from our operations in Asia for the second quarter of fiscal 2009 were
$1.6 million, a decrease of $0.2 million, or 11.1%, as compared to the second
quarter of fiscal 2008. The decrease in net sales in Asia was due primarily to a
decrease in sales of single-use cameras in Japan.
Gross Profit
Gross profit for the second quarter of fiscal 2009 was $(0.6) million, or (4.5)%
of net sales, versus gross profit of $1.3 million, or 7.1% of net sales, in the
second quarter of fiscal 2008. The decrease in the period-over-period gross
profit was primarily due to an increase in severance costs of $1.4 million, a
reduction in gross profit of approximately $0.7 million related to a decrease in
period-over-period net sales and an increase in unfavorable manufacturing
material, labor and overhead cost variances of approximately $0.5 million
partially offset by an increase in period-over-period gross margin percentages
totaling approximately $0.7 million.
Product engineering costs for the second quarter of fiscal 2009 and the second
quarter of fiscal 2008, in dollars and as a percentage of net sales, were $0.2
million, or 1.5%, and $0.5 million, or 2.8%, respectively.
Operating Expenses
Selling expenses for the second quarter of fiscal 2009 were $1.0 million, or
7.3% of net sales, compared to $1.8 million, or 9.8% of net sales, for the
second quarter of fiscal 2008. Our period-over-period selling expenses decreased
by approximately $0.8 million primarily due to a reduction in selling-related
employee compensation costs of $0.4 million, royalty costs of $0.2 million and
freight costs of $0.1 million, and a reduction in certain other costs of $0.1
million. Selling-related employee compensation costs decreased as a result of
the elimination of certain positions in connection with our liquidation.
G&A expenses for the second quarter of fiscal 2009 were $1.6 million, or 12.3%
of net sales, compared to $2.8 million, or 15.2% of net sales, for the second
quarter of fiscal 2008. Our period-over-period G&A expenses decreased by $1.2
million primarily due to a reduction in G&A-related employee compensation costs
of $0.6 million, professional fees of $0.4 million, and certain other costs of
$0.3 million. G&A-related employee compensation costs decreased as a result of
the elimination of certain positions in connection with our Plan of Liquidation.
Share-Based Compensation
During the second quarter of fiscal 2009 and the second quarter of fiscal 2008,
we recorded $2,000 and $1,000, respectively, of share-based compensation. The
total income tax benefit of $0 was recognized in the consolidated statement of
operations for the share-based compensation arrangements for each of the second
quarter of fiscal 2009 and the second quarter of fiscal 2008, respectively. We
consider all of our share-based compensation expense as a component of general
and administrative expenses in the accompanying consolidated statements of
operations. In addition, no amount of share-based compensation was capitalized
as part of capital expenditures or inventory for the second quarter of fiscal
2009 and the second quarter of fiscal 2008.
25
Interest Expense
Interest expense was approximately $0.1 million for each of the second quarter
of fiscal 2009 and the second quarter of fiscal 2008, respectively.
Other Expense (Income), Net
Other expense (income), net was $0.2 million and ($0.5) million for the second
quarter of fiscal 2009 and the second quarter of fiscal 2008, respectively. The
decrease is primarily a realized loss on the sale of an investment of $0.4
million, a decrease in investment income of $0.2 million and an increase in
foreign exchange losses. For further discussion, see Note 4 - Summary of
Significant Accounting Policies and Note 9 - Commitments and Contingencies,
License and Royalty Agreements, in the Notes to the Condensed Consolidated
Financial Statements.
Income Taxes
As of December 27, 2008 and June 28, 2008, based upon all of the available
evidence, management determined that it was not more likely than not that its
deferred income tax assets will be fully realized. Accordingly, we recorded a
valuation allowance for the entire balance of our deferred income tax assets as
of December 27, 2009 and June 28, 2008. The second quarter of fiscal 2009
provision for income taxes relates primarily to state income taxes. The second
quarter of fiscal 2008 provision for income taxes includes a $(774,000) income
tax benefit related to our settlement with the German Tax Authorities of the net
liabilities resulting from an audit of our German subsidiary for fiscal years
2000 through 2005 and a net reduction in United States state income tax
liabilities of $13,000. For further discussion, see Note 4 - Summary of
Significant Accounting Policies - Income Taxes in the Notes to the Condensed
Consolidated Financial Statements.
Net Loss
Net loss for the second quarter of fiscal 2009 was approximately $(3.5) million,
as compared to a net loss of $(2.2) million for the second quarter of fiscal
2008.
Other Charges
During the second quarter of fiscal 2009, the Company recorded $1.6 million in
other charges related to severance costs. During the second quarter of fiscal
2008, the Company recorded total charges of $0.2 million related to severance
costs for the elimination of certain employee positions. For further discussion,
see Note 11 - Other Charges in the Notes to the Condensed Consolidated Financial
Statements.
Results of Operations
Fiscal 2009 YTD Compared to Fiscal 2008 YTD
Net Sales
Net sales of our products for the period June 29, 2008 to December 18, 2008
("fiscal 2009 YTD") were $30.6 million, a decrease of $9.5 million, or 23.7%, as
compared to net sales of $40.1 million for the six months ended December 29,
2007 ("fiscal 2008 YTD"). The decrease in net sales was due primarily to a
reduction in sales of single-use and traditional film cameras to significant
customers.
Net sales from our operations in the Americas for fiscal 2009 YTD were $21.9
million, a decrease of $7.7 million, or 26.0%, as compared to fiscal 2008 YTD.
The decrease in net sales was due primarily to a reduction in sales of
single-use and traditional film cameras to significant customers.
26
Net sales from our operations in Europe for fiscal 2009 YTD were $5.7 million, a
decrease of $1.6 million, or 21.9%, as compared to fiscal 2008 YTD. The decrease
in net sales in Europe was due primarily to a reduction in sales of single-use
cameras.
Net sales from our operations in Asia for fiscal 2009 YTD were $3.0 million, a
decrease of $0.2 million, or 6.3% as compared to fiscal 2008 YTD. The decrease
in net sales in Asia was due primarily to a decrease in sales of single-use
cameras in Japan.
Gross Profit
Gross profit for fiscal 2009 YTD was $2.6 million, or 8.5% of net sales, versus
gross profit of $4.3 million, or 10.7% of net sales, in fiscal 2008 YTD. During
fiscal 2009 YTD as compared to fiscal 2008 YTD, gross profit decreased primarily
due to an increase in severance costs of $1.5 million, a reduction in gross
profit of approximately $1.3 million related to a decrease in period-over-period
net sales partially offset by a decrease in unfavorable manufacturing material,
labor and overhead cost variances of $0.1 million and an increase in
period-over-period gross margin percentages totaling approximately $1.0 million.
Product engineering costs for fiscal 2009 YTD and fiscal 2008 YTD, in dollars
and as a percentage of net sales, were $0.5 million, or 1.6%, and $1.0 million,
or 2.5%, respectively.
Operating Expenses
Selling expenses for fiscal 2009 YTD were $2.1 million, or 6.7% of net sales,
compared to $4.0 million, or 10.0% of net sales, for fiscal 2008 YTD. The $1.9
million decrease in selling expenses was primarily due to a reduction in
employee compensation costs of $0.9 million, a reduction in freight costs of
$0.4 million, a reduction in royalty fees of $0.3 million and a reduction in
certain other costs of $0.3 million. Selling related employee compensation costs
decreased as a result of the elimination of certain positions in connection with
our cost-reduction initiatives.
G&A expenses for fiscal 2009 YTD were $3.6 million, or 11.7% of net sales,
compared to $5.7 million, or 14.2% of net sales, for fiscal 2008 YTD. The $2.1
million decrease in G&A expenses was primarily due to a reduction in G&A-related
employee compensation costs of $0.9 million as a result of the elimination of
certain positions in connection with our Plan of Liquidation, a reduction in
professional fees of $0.5 million, a reduction in depreciation and amortization
costs of $0.3 million, a reduction in value added taxes of $0.2 million related
to a settlement in the prior period and a reduction in certain other costs of
$0.2 million.
Share-Based Compensation
During fiscal 2009 YTD and fiscal 2008 YTD, we recorded approximately $8,000 and
$6,000, respectively, of share-based compensation expenses. The total income tax
benefit of $0 was recognized in the consolidated statements of operation for the
share-based compensation arrangements for each of fiscal 2009 YTD and fiscal
2008 YTD, respectively. We consider all of our share-based compensation expense
as a component of general and administrative expenses. In addition, no amount of
share-based compensation expense was capitalized as part of capital expenditures
or inventory for the periods presented.
Interest Expense
Interest expense was approximately $0.3 million and $0.2 million for fiscal 2009
YTD and fiscal 2008 YTD, respectively.
Other Income, Net
Other income, net was $1.2 million and $0.8 million for fiscal 2009 YTD and
fiscal 2008 YTD, respectively. The year-to-date over year-to-date increase in
other income, net was primarily due to a reimbursement to us of approximately
$1.1 million related to a portion of the upfront fee paid by us to Jenoptik AG
upon entering into a license agreement in 2004 partially offset by a realized
loss of $0.4 million on the sale of an investment and, to a lesser extent, an
increase in foreign
27
exchange losses. For further discussion, see Note 4 - Summary of Significant
Accounting Policies in the Notes to the Condensed Consolidated Financial
Statements.
Income Taxes
As of December 27, 2008 and June 28, 2008, based upon all of the available
evidence, management determined that it was not more likely than not that its
deferred income tax assets will be fully realized. Accordingly, we recorded a
valuation allowance for the entire balance of our deferred income tax assets.
During fiscal 2009 YTD and fiscal 2008 YTD, we recorded a (benefit) provision
for income taxes of $8,000 and $(785,000), respectively. The fiscal 2009 YTD
provision for income taxes relates primarily to domestic state taxes. The fiscal
2008 YTD provision for income taxes includes a $(774,000) income tax benefit
related to our settlement with the German Tax Authorities of the net liabilities
resulting from an audit of our German subsidiary for fiscal years 2000 through
2005 and a net reduction in United States state income tax liabilities of
$11,000. For further discussion, see Note 4 - Summary of Significant Accounting
Policies - Income Taxes in the Notes to the Condensed Consolidated Financial
Statements.
Net Loss
We incurred a net loss of $(2.2) million for fiscal 2009 YTD, as compared to a
net loss of $(4.0) million for fiscal 2008 YTD.
Other Charges
During fiscal 2009 YTD and fiscal 2008 YTD, we recorded charges of $1.6 million
and $0.2 million, respectively, related to severance costs for the elimination
of certain employee positions. For further discussion, see Note 11 - Other
Charges in the Notes to the Condensed Consolidated Financial Statements.
Liquidity and Capital Resources
We believe that our cash and cash equivalents, anticipated cash flow from
working capital and net proceeds from the sales of non-cash assets pursuant to
the Plan of Liquidation will be adequate to pay our existing obligations and
fund our wind down costs. However, our estimates of our anticipated net proceeds
from the sale of our non-cash assets and our estimates of our anticipated
settlement of liabilities and wind down costs are subject to numerous
uncertainties beyond our control and do not reflect (i) contingent liabilities
that have not been quantified and are not yet reflected as liabilities on our
statement of net assets as of December 27, 2008, such as liabilities related to
existing litigations and claims that have not been resolved, (ii) any unknown
liabilities or contingent liabilities that may materialize in the future or
(iii) further changes in the value of the auction rate securities. Accordingly,
the estimated amount of net assets in liquidation as of December 27, 2008 may
increase or decrease depending on the outcome of future events and the actual
net proceeds potentially available to be distributed to shareholders in
liquidation, if any, could be more or less than the estimated amount of net
assets in liquidation as of December 27, 2008.
Uncertainties in the Credit Markets
As of December 27, 2008, we determined that the estimated value of our auction
rate securities was less than their par value and have recorded our auction rate
securities at a carrying value of $14.7 million. The auction rate securities
were classified as "Investments" on our consolidated statement of net assets.
Our portfolio of auction rate securities consists of AAA rated, long-term debt
obligations secured by student loans, with approximately 100% of such collateral
being guaranteed by the U.S. Government under the Federal Family Education Loan
Program. Liquidity for these securities has been provided by an auction process
that resets the applicable interest rate at pre-determined intervals usually
every 28-35 days. In the past, the auction process allowed investors to obtain
immediate liquidity if needed by selling the securities at face value. The
current disruptions in the credit markets have adversely affected the auction
market for these types of securities. As previously reported, during fiscal 2008
we experienced failed auctions for certain of our auction rate securities that
have gone to auction, resulting in our inability to
28
sell those securities. These auction rate securities continue to pay interest at
default rates which are generally higher than the current market rate and there
has been no change in the ratings of these securities to date. However, in
certain instances, the interest rate for some of our auction rate securities may
reset to a zero percent interest rate due to a feature of the relevant formula
for determining the interest rate. To date, only a small percentage of the
auction rate securities have reset to a zero percent interest rate for a period
of time. These securities then may reset to a higher interest rate in the
future. In the event that a greater percentage of our auction rate securities
reset to a zero percent interest rate and do not subsequently reset to a higher
interest rate, it could have a material adverse effect on our statement of net
assets and changes in net assets.
On October 17, 2008, we consented to tender $2.1 million in par value of our
auction rate securities in connection with a tender offer by Leon Higher
Education Authority, Inc. that has Brazos Higher Education Service Corporation,
Inc. acting as its master servicer. The tender offer required certain levels of
participation by the auction rate securities holders. The tender offer did not
attain the required level of participation and expired on December 4, 2008. On
December 12, 2008, in order to fund liquidation related items, we sold $2.7
million in par value of our auction rate securities for $2.3 million that
resulted in a realized loss of $0.4 million included in "Other income, net" in
the accompanying condensed consolidated statements of operations. In connection
with the sale of these auction rate securities, we recorded a reduction in
accumulated other comprehensive loss that resulted in an approximate $0.8
million increase to stockholders' equity. We have not experienced redemptions of
our auction rate securities subsequent to December 27, 2008. Currently, we have
the ability and intent to hold our auction rate securities until a recovery of
par value and do not consider our auction rate securities to be
other-than-temporarily impaired as of December 27, 2008.
The potential lack of liquidity in our auction rate security investments could
affect the timing of the dissolution and liquidation and amount of distribution
that shareholders receive in the dissolution and liquidation. Issuers and market
makers are exploring alternatives that may improve liquidity of our auction rate
securities and the New York Attorney General and the SEC recently entered into
agreements with the investment bank that sold us our auction rate securities
under which the investment bank agreed to use its best efforts to facilitate
issuer redemptions of auction rate securities of institutional investors such as
us. However, we cannot assure you that these efforts will be successful and,
therefore, there is a risk that there could be a further decline in value of our
auction rate securities. Continued failed auctions may affect the fair value of
these securities and require us to further adjust the carrying value of the
investment through an impairment assessment and we may receive less than
anticipated proceeds when we sell these securities, which would reduce the net
proceeds potentially available to be distributed to shareholders in liquidation.
Cash and Cash Equivalents - Cash and cash equivalents increased by $5.6 million
from $19.0 million at June 28, 2008 to $24.7 million at December 27, 2008. The
increase was primarily the result of net cash provided by operating activities
of $3.0 million, release of $3.9 million in restricted cash, net proceeds
related to sales of short-term investments of $4.2 million, net proceeds
received from the sale of property, plant and equipment of $0.2 million and net
cash of $1.6 million received during the liquidation period partially offset by
$7.3 million in net cash used in repayments under financing facilities.
Investments - Investments, including available-for-sale investments, decreased
by $3.8 million from $18.5 million at June 28, 2008 to $14.7 million at December
27, 2008, as a result of certain redemptions of our auction rate securities at
100% of par value and the sale of a certain auction rate security at 85% of par
value subsequent to June 28, 2008. Current capital market conditions have
significantly reduced our ability to liquidate our auction rate securities. For
further discussion see Note 6 - Investments in the Notes to Condensed
Consolidated Financial Statements.
Cash Provided By (Used in) Operating Activities - Cash provided by operating
activities during fiscal 2009 YTD was $3.0 million which compares favorably to
cash used in operating activities of $(6.8) million for fiscal 2008 YTD. The
changes in cash used in operating activities for the respective YTD fiscal
periods were primarily attributable to changes in net loss, as adjusted for
non-cash items of income and expense, accounts receivable as a result of
improved collections, lower levels of inventories as a result of a focused
effort to control inventory balances, and decreases in accounts payable as a
result of lower inventory purchases and expenses.
29
Cash Provided by Investing Activities - Cash provided by investing activities
was $8.4 million for fiscal 2009 YTD as compared to cash provided by investing
activities of $2.7 million for fiscal 2008 YTD. The increase in cash provided by
investing activities was primarily due to proceeds from the sales of
available-for-sale investments of $4.2 million and the release of restricted
cash of $3.9 million.
Cash (Used In) Provided By Financing Activities - Cash used in financing
activities during fiscal 2009 YTD was $(7.3) million as compared to cash
provided by financing activities of $4.7 million during fiscal 2008 YTD. This
activity results from a net increase of repayments of our short-term borrowings
made under our financing facilities used for working capital purposes. See Note
8 - Borrowings and Financing Facilities in the Notes to the Condensed
Consolidated Financial Statements.
Financing Facilities
Hong Kong Financing Facilities
Concord Camera HK Limited ("CCHK"), our Hong Kong subsidiary, has an approximate
US$1.0 million demand financing facility with Dah Sing Bank, Limited ("Dah
Sing") and a guarantee facility of 380,000 Euros (equal to approximately US$0.5
million) with The Hongkong and Shanghai Banking Corporation ("HSBC"). On
December 15, 2008, at the request of CCHK due to the anticipated approval by our
shareholders of the Plan of Liquidation, CCHK and HSBC entered into an agreement
cancelling an import facility which provided $4.7 million in borrowing capacity
to CCHK. As security for the financing facilities, among other things, CCHK
initially provided to HSBC and Dah Sing pledged deposits in the amount of
approximately US$5.2 million and US$1.0 million, respectively. As of December
27, 2008, the amounts of the pledged deposits were reduced to $1.0 million and
$0.1 million, respectively, and will continue to be reduced as the amounts
outstanding under these financing facilities are reduced. The HSBC financing
facility is subject to review by HSBC by June 15, 2009 and the Dah Sing
financing facility is subject to review by Dah Sing at any time.
The Dah Sing facilities were used by CCHK for opening letters of credit, draft
loans, negotiating export letters of credit with a letter of guarantee, outward
bills loans, trust receipts, invoice financing, packing loans and/or advances
against receivables. The Dah Sing facilities bear interest at variable rates, as
follows: 1.5% per annum over the Hong Kong Interbank Offered Rate on facilities
denominated in Hong Kong Dollars; 1.5% per annum over the London Interbank
Offered Rate on facilities denominated in U.S. Dollars; and 1.5% per annum over
Dah Sing's Base Rate on facilities denominated in any other foreign currency.
The HSBC facilities bear interest at variable rates, as follows: 1.75% over the
Hong Kong Interbank Offered Rate on import loans denominated in Hong Kong
Dollars and 1.75% over the Singapore Interbank Offered Rate for transactions
denominated in currency other than the Hong Kong Dollar.
United States Financing Facilities
On November 3, 2008, Concord Keystone Sales Corp. ("Keystone"), our United
States subsidiary, received a notice from The CIT Group/Commercial Services,
Inc. ("CIT") that an event of default existed under the $15 million secured
revolving line of credit (the "CIT Facility") as a result of our press release
on October 30, 2008 that it has elected to wind down operations and liquidate
assets.
On December 16, 2008, Keystone received a notice from CIT that CIT had
terminated the CIT Facility, effective as of December 16, 2008, and that all
obligations under the CIT Facility were now due and payable. As a result of
CIT's termination of the CIT Facility, on December 18, 2008, we repaid the CIT
Facility in full and placed $100,000 in a reserve account to cover any returned
or dishonored items for which repayment is demanded from CIT during the 60-day
period following the date of the December 16, 2008 notice. As of February 18,
2009, Keystone has received the entire $100,000 amount back from CIT.
Effective April 17, 2008, the Company entered into an Express Creditline Loan
Agreement (the "Loan Agreement") with Citigroup Global Markets, Inc.
("Citigroup") for a $9 million secured revolving credit line (the "Citigroup
Facility").
30
Advances under the Citigroup Facility may be used by the Company to finance
business operations and general working capital and other corporate business
purposes, including, but not limited to, implementation of strategic
alternatives, distributions to shareholders and/or any other uses of cash as
determined by the Company and cannot be used to purchase, carry or trade in
securities, or reduce or retire indebtedness incurred to purchase, carry or
trade in securities. In addition to the $9 million credit line for advances, the
Citigroup Facility provided for the accrual of up to $1 million of interest,
resulting in an aggregate credit limit of $10 million (the "Loan Limit") under
the Citigroup Facility. The Citigroup Facility is secured by a first priority
lien and security interest in the Company's remaining auction rate securities
(the "Collateral"). Effective October 20, 2008, the Loan Limit was increased to
$10,925,000. The Loan Limit has decreased and is anticipated to decrease further
as the Company sells its auction rate securities and the proceeds from such
sales of collateral are used to pay down the Citigroup Facility.
Under the terms of the Loan Agreement, interest on amounts outstanding under the
Citigroup Facility was payable monthly at the Open Federal Funds rate plus 1.50%
per annum from April 17, 2008 through October 21, 2008. Effective October 21,
2008, the interest rate was increased to the Open Federal Funds rate plus 3.25%
per annum. Citigroup may, in its sole discretion and without cause, demand full
or partial payment of any outstanding balance under the Citigroup Facility or
reduce the Loan Limit at any time. The Loan Agreement may be terminated by
either party upon thirty calendar days' prior written notice to the other party.
At December 27, 2008 and June 28, 2008, we had $0 and $3.2 million,
respectively, in short-term borrowings outstanding under the Hong Kong financing
facilities described above. The weighted average borrowing rates on the
short-term borrowings as of December 27, 2008 and June 28, 2008, were 6.5% and
6.3%, respectively.
At December 27, 2008 and June 28, 2008, we had $9.2 million and $14.4 million,
respectively, in short-term borrowings outstanding under the United States
Financing Facilities. The weighted average borrowing rates on the short-term
borrowings as of December 27, 2008 and June 28, 2008 were 1.6% and 4.7%,
respectively.
At December 27, 2008 and June 28, 2008, we had $0.1 million and $1.5 million,
respectively, in letters of credit outstanding, which were issued primarily to
certain suppliers to guarantee payment for our purchase orders with such
suppliers. The letters of credit are issued under our import facilities that
have been granted to CCHK.
We are not engaged in hedging activities and had no forward exchange contracts
outstanding at December 27, 2008.
Forward-Looking Information: Certain Cautionary Statements
The statements contained in this report that are not historical facts are
"forward-looking statements" (as such term is defined in the Private Securities
Litigation Reform Act of 1995), which can be identified by the use of
forward-looking terminology such as: "estimates," "projects," "anticipates,"
"expects," "intends," "believes," "plans," "forecasts" or the negative thereof
or other variations thereon or comparable terminology, or by discussions of
strategy that involve risks and uncertainties. Our actual results could differ
materially from those anticipated in such forward-looking statements as a result
of certain factors. For a discussion of some of the factors that could cause
actual results to differ, see the discussion under "Risk Factors" in our Annual
Report on Form 10-K for the fiscal year ended June 28, 2008 and subsequently
filed reports. We wish to caution the reader that these forward-looking
statements, including, without limitation, statements regarding the dissolution
and liquidation of our company, the timing of the closing of our stock transfer
books, the amount and timing of any liquidating distributions, expected cost
reductions, our assessment and estimates of royalty payments in connection with
intellectual property claims, the sufficiency of our working capital and cash to
fund our operations during the liquidation process, our belief regarding the
impact of pending litigation and other contingent claims, our expectations
regarding the amount we expect to realize from the liquidation of our assets,
our expectations regarding, and our intent to hold, our auction rate securities,
our belief regarding the sale of certain land, building and improvements, our
assessment and estimates of costs associated with executing the Plan of
Liquidation and settlement amounts for our liabilities, including contingent
claims, and other statements contained in this report regarding matters that are
not historical facts, are only estimates or predictions. No assurance can be
given that future results will be achieved or that future liquidating
distributions will be made. Actual events or results may differ materially as a
result of risks facing us or actual results differing from the assumptions
underlying such statements. In particular, our expected
31
results could be adversely affected by, among other things, economic conditions
negatively affecting our customers, market conditions that may affect the fair
value of our investments and our ability to liquidate these investments, our
ability to satisfy the conditions to the closing of the sale of our property in
the PRC within the necessary timeframe, if at all, the ability and time required
to obtain the approval of the local government in the PRC to transfer the real
estate certificates to the purchaser, our ability and the time required to
transfer the proceeds received from the sale of our property in the PRC out of
the PRC, fluctuations in the exchange rate and the corresponding U.S. dollar
proceeds to be received by the Company from the sale our property in the PRC,
our inability to liquidate our assets or settle our liabilities on favorable
terms or, our decision to dissolve and liquidate our Company. Any
forward-looking statements contained in this report represent our estimates only
as of the date of this report, or as of such earlier dates as are indicated
herein, and should not be relied upon as representing our estimates as of any
subsequent date. While we may elect to update forward-looking statements at some
point in the future, we specifically disclaim any obligation to do so, even if
our estimates change.
Item 3. Quantitative and Qualitative Disclosures about Market Risk.
During the reporting period, except as disclosed in our discussion relating to
auction rate securities in Part 1, Item 2 under Uncertainties in the Credit
Markets and elsewhere in this Quarterly Report on Form 10-Q, there have been no
material changes in the disclosures set forth in Part II, Item 7A in our Annual
Report on Form 10-K for the fiscal year ended June 28, 2008.
Item 4T. Controls and Procedures.
(a) Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures, as defined in Rules 13a-15(e)
and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), designed to ensure that information required to be disclosed in our
filings under the Exchange Act is (1) recorded, processed, summarized and
reported within the time periods specified in SEC rules and forms, and (2)
accumulated and communicated to our management, including the principal
executive officer and principal financial officer, to allow timely decisions
regarding required disclosure.
Our management has reviewed and evaluated the effectiveness of the design and
operation of our disclosure controls and procedures as of the end of the period
covered by this Quarterly Report on Form 10-Q. Based on that evaluation, our
principal executive officer and principal financial officer concluded that as of
December 27, 2008, our disclosure controls and procedures were effective in
providing reasonable assurance of achieving their objectives as described above.
(b) Changes in Internal Control over Financial Reporting
No change in our internal control over financial reporting has occurred during
the quarter ended December 27, 2008 that has materially affected, or is
reasonably likely to materially affect, our internal control over financial
reporting.
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
See Part I, Item 1, Financial Statements, Note 10 - Litigation and Settlements
in the Notes to the Condensed Consolidated Financial Statements.
Item 1A. RISK FACTORS
There have been no material changes in the risk factors set forth in Part 1,
Item 1A, "Risk Factors" in our Annual Report on Form 10-K for the fiscal year
ended June 28, 2008 and in "Certain Risks Related to the Dissolution and the
Plan of Liquidation" in our Definitive Proxy Statement for the 2008 Annual
Shareholders' Meeting filed with the SEC on November 7, 2008.
32
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Please refer to the Form 8-K filed by the Company on December 22, 2008 for
information regarding the matters that were submitted to a vote of shareholders
at the Company's 2008 Annual Meeting of Shareholders.
Item 5. OTHER INFORMATION
On January 26, 2009, the Company gave notice to Urs W. Stampfli, the Company's
Senior Vice President and Director of Global Sales and Marketing, of the
termination of his employment with the Company effective on February 28, 2009.
Mr. Stampfli will receive severance payments from the Company pursuant to his
previously disclosed Terms of Employment with the Company, as amended, which
consist of: (i) payments equal to 12 months of his base salary and car allowance
and (ii) reimbursement of premiums for the one year post-employment period for
(a) COBRA continuation coverage under the Company's insurance policies or (b)
comparable medical, dental and vision insurance coverages if COBRA continuation
under the Company's insurance policies is not available for any portion of the
one year post-employment period.
Item 6. EXHIBITS
No. Description Method of Filing
--- ----------- ----------------
3.1 Certificate of Incorporation, as amended through Incorporated by reference to the Company's annual report on
May 9, 2000 Form 10-K for the year ended July 1, 2000.
3.2 Restated By-Laws, as amended through July 12, 2004 Incorporated by reference to the Company's annual report on
Form 10-K for the year ended July 3, 2004.
3.3 Certificate of Amendment (No. 7) of Certificate of Incorporated by reference to the Company's current report on
Incorporation, dated November 2, 2006 Form 8-K filed November 7, 2006.
3.4 Certificate of Correction of Certificate of Incorporated by reference to the Company's current report on
Amendment (No. 7) to Certificate of Incorporation, Form 8-K filed November 7, 2006.
dated November 3, 2006
31.1 Certification of Chief Executive Officer pursuant Filed herewith.
to Rule 13a-14(a)/15d-14(a)
31.2 Certification of Principal Financial Officer Filed herewith.
pursuant to Rule 13a-14(a)/15d-14(a)
32.1 Certification of Chief Executive Officer pursuant Filed herewith.
to 18 U.S.C. ss.1350
32.2 Certification of Principal Financial Officer Filed herewith.
pursuant to 18 U.S.C. ss.1350
33
S I G N A T U R E
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CONCORD CAMERA CORP.
--------------------------------------------
(Registrant)
DATE: March 16, 2009 By: /s/ Blaine A. Robinson
--------------------------------------------
(Signature)
Blaine A. Robinson,
Vice President - Finance, Treasurer and
Assistant Secretary
(Principal Financial and Accounting Officer
and Duly Authorized Officer)
34
Exhibit Index
No. Description
--- -----------
31.1 Certification of Chief Executive Officer pursuant to Rule
13a-14(a)/15d-14(a)
31.2 Certification of Principal Financial Officer pursuant to Rule
13a-14(a)/15d-14(a)
32.1 Certification of Chief Executive Officer pursuant to 18 U.S.C.
ss.1350
32.2 Certification of Principal Financial Officer pursuant to 18 U.S.C.
ss.1350
35