Friday, November 03, 2006

Nothing to Smile About At Concord Camera

Concord Camera Corp. 10086.46117.9755.9321.1910.85
Nasdaq Stock Market – U.S. Index10070.3478.1098.5899.24105.85
Peer Group Index10085.3195.06111.08111.61145.80

In its Report on Executive Pay, the Compensation Committee of photographic equipment maker Concord Camera (LENS-$0.51) stated that it “sought to ensure that the Company’s compensation policies were designed and implemented to promote the goal of enhancing long-term shareholder value.”

According to the Company’s recently filed
DEF 14A with the SEC, $100.00 invested in the Common Stock of Concord Camera on June 1, 2001, was worth $10.85 per share (as of June 1, 2006).

Despite an abysmal stock performance—an 89.2% loss in shareholder value in the last five-years—Ira B. Lampert, who has been Chairman and CEO since 1994, seems to be immune from the Company’s purported compensation policies. In the last three fiscal years, Mr. Lampert earned $2.78 million in salary and $9.54 million in “other compensation.” [Ed. note. At a time when most working families are looking at shrinking retirement nest eggs, 78.3% of the $9.54 million in other compensation, or $7.47 million, was a FY 2006 distribution from his Supplemental Executive Retirement Plan (SERP).]

The Pay Committee believes that the key to enhancing shareholder value is to “attract, retain and motivate qualified and experienced executive officers through forms of compensation that encourage and reward long-term service to the Company, and enable those who succeed in building shareholder value to share in the value they have helped to create.”

However, their actions seem to contradict their intent. Until last year, Lampert’s employment agreement required that the Company make a $500,000 annual contribution to a SERP adopted for his benefit—independent of corporate performance.

Other annual benefits received by Lampert included auto allowance and costs, partial housing costs and reimbursement of taxes, respectively, of $30,000, $48,000 and $62,452 for fiscal 2006; $30,000, $48,000 and $76,694 for fiscal 2005; and $30,000, $48,000 and $105,114 for fiscal 2004.

Despite restructuring initiatives begun in 2004, net sales for fiscal year ended 2006 were $137.5 million, a decrease of $36.8 million, or 21%, as compared to net sales for fiscal 2005. The decrease in net sales was due to the cessation of a design and manufacturing services contract for single-use camera sales to Eastman Kodak (EK-$25.01) and a decrease in digital and 35mm traditional film camera sales in European and Asian markets.

Concord Camera remains highly dependent on two retail customers for net sales: Wal-Mart Stores, Inc. (WMT-$48.29) and Walgreen Co. (WAG-$42.21) represented 33.8% and 15.2% of total net sales in FY 2006, respectively.

The Compensation Committee engages the services of outside consultants to obtain advise them on competitive levels of compensation used by public companies of comparable size. [Ed. note. What good does this analysis do if one advocates that the peer (comparable) firms were also headed by CEOs who were paid too much?]

In our view, Lampert’s pay package is just another case where a CEO’s pay has nothing to do with his performance (or any quantifiable effect on shareholder value). In addition, Concord Camera reinforces the argument that a CEO may not make all that much of a difference in whether the company is a success or a failure.

Concord Camera has received a
Notice of Delisting because of its failure to maintain a minimum $1.00 bid price requirement. If the bid price of the Company's common stock does not close at $1.00 per share or more for a minimum of 10 consecutive business days before December 26, 2006, the Company will (probably) be delisted from the NASDAQ Global Market.

The employment agreement of Ira Lampert, 61, does not expire until July 1, 2009.
Editor David J Phillips does not own any of the stocks mentioned in this article. The 10Q Detective has a full disclosure policy.

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