SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended January 1, 2000 - Commission file Number 0-17038
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Concord Camera Corp.
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(Exact name of registrant as specified in its charter)
New Jersey 13-3152196
- ---------------------------- -------------------
(State or other Jurisdiction (I.R.S. Employer
of Incorporation) Identification No.)
4000 Hollywood Blvd. Suite 650N, Hollywood, Florida 33021
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(Address of principal executive offices) (Zip code)
954/331-4200
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes _X_ No ____
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock, no par value -- 11,710,867 shares as of January 31, 2000
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Page 1 of 14
Exhibit Index on Page 13
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Concord Camera Corp.
Condensed Consolidated Balance Sheets
(Unaudited) (Note)
January 1, 2000 July 3, 1999
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Assets
Current Assets:
Cash and cash equivalents $38,501,475 $30,706,761
Accounts receivable, net 24,728,516 18,272,329
Inventories, net 22,850,218 20,620,556
Prepaid expenses and other current assets 2,346,456 2,404,400
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Total current assets 88,426,665 72,004,046
Plant and equipment, net 20,896,779 18,871,300
Goodwill, net 3,351,490 291,764
Other assets 4,457,763 5,480,342
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Total assets $117,132,697 $96,647,452
============ ===========
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable $21,414,379 $16,224,538
Accrued expenses 10,108,770 4,985,789
Short-term debt 9,323,489 8,088,901
Current portion of long-term debt - 2,100,000
Current portion of obligations under capital leases 1,800,699 2,073,492
Income taxes payable 1,634,549 896,142
Other current liabilities 873,217 188,058
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Total current liabilities 45,155,103 34,556,920
Deferred income taxes 795,138 792,358
Long-term debt, net of current portion 14,933,289 14,850,000
Obligations under capital leases, net of current portion 1,956,037 2,623,080
Other long-term liabilities 3,380,437 1,129,569
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Total liabilities 66,220,004 53,951,927
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Commitment and contingencies
Stockholders' equity:
Common stock, no par value, 40,000,000 authorized; 11,699,867 and
11,629,592 issued as of January 1, 2000 and July 3, 1999, respectively 41,210,542 41,117,335
Paid in capital 1,069,608 1,033,553
Retained earnings 14,500,515 6,086,691
Notes receivable arising from common stock purchase agreements (1,730,834) (2,163,542)
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55,049,831 46,074,037
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Less: treasury stock, at cost; 771,263 and 675,863 shares as of January 1,
2000 and July 3, 1999, respectively (4,137,138) (3,378,512)
------------ -----------
Total stockholders' equity
50,912,693 42,695,525
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Total liabilities and stockholders' equity $117,132,697 $96,647,452
============ ===========
See accompanying notes to condensed consolidated financial statements.
Note: The balance sheet at July 3, 1999 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.
2
Concord Camera Corp.
Condensed Consolidated Income Statements
(Unaudited)
For the three months ended
------------------------------------
January 1, 2000 January 2, 1999
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Net sales $44,522,402 $31,083,585
Cost of products sold 32,148,987 23,144,944
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Gross profit 12,373,415 7,938,641
Selling expenses 2,995,193 2,198,854
General and administrative expenses 3,732,437 2,503,486
Interest expense 867,691 950,521
Other income, net (99,104) (218,017)
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Income before income taxes 4,877,198 2,503,797
Provision for income taxes 359,000 176,000
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Net income $4,518,198 $2,327,797
=========== ===========
Basic earnings per share $0.41 $0.21
=========== ===========
Diluted earnings per share $0.37 $0.20
=========== ===========
Weighted average common shares outstanding - basic 10,919,721 10,944,819
=========== ===========
Effect of dilutive securities: Employee stock options 1,199,601 653,500
=========== ===========
Weighted average common shares outstanding - diluted 12,119,322 11,598,319
=========== ===========
See accompanying notes to condensed consolidated financial statements.
3
Concord Camera Corp.
Condensed Consolidated Income Statements
(Unaudited)
For the six months ended
------------------------------------
January 1, 2000 January 2, 1999
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Net sales $85,760,299 $62,107,412
Cost of products sold 62,048,105 45,725,825
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Gross profit 23,712,194 16,381,587
Selling expenses 5,510,820 4,592,033
General and administrative expenses 7,537,280 4,974,581
Interest expense 1,741,668 1,755,710
Other income, net (227,398) (131,922)
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Income before income taxes 9,149,824 5,191,185
Provision for income taxes 736,000 405,000
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Net income $8,413,824 $4,786,185
=========== ===========
Basic earnings per share $0.77 $0.43
=========== ===========
Diluted earnings per share $0.70 $0.41
=========== ===========
Weighted average common shares outstanding - basic 10,939,558 11,045,548
=========== ===========
Effect of dilutive securities: Employee stock options 1,126,173 688,669
=========== ===========
Weighted average common shares outstanding - diluted 12,065,731 11,734,217
=========== ===========
See accompanying notes to condensed consolidated financial statements.
4
Concord Camera Corp.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
For the six months ended
-------------------------------------
January 1, 2000 January 2, 1999
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Cash flows from operating activities:
Net income $8,413,824 $4,786,186
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Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 2,137,225 1,996,108
Amortization of deferred financing costs 66,708 55,590
Officers notes forgiven on stock purchases 502,131 -
Interest income on notes receivable arising from common stock agreements (69,423) (72,184)
Compensation (income) expense on stock options (36,055) 182,767
Changes in operating assets and liabilities:
Accounts receivable (6,456,187) 2,279,754
Inventories (2,229,662) 2,460,124
Prepaid expenses and other current assets 57,944 (859,621)
Other assets (2,384,033) (1,462,259)
Accounts payable 5,189,841 (1,262,535)
Accrued expenses 5,122,981 2,444,260
Income taxes payable 738,407 405,332
Other current liabilities 685,159 227,180
Other long-term liabilities 2,250,868 -
Deferred income taxes 2,780 -
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Total adjustments 5,578,684 6,394,516
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Net cash provided by operating activities 13,992,508 11,180,702
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Cash flows from investing activities:
Purchase of property, plant and equipment (3,810,415) (3,518,365)
Purchase of treasury stock (758,626) (1,365,384)
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Net cash (used in) investing activities (4,569,041) (4,883,749)
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Cash flows from financing activities:
Net borrowings (repayments) under short-term debt agreements 1,234,588 (3,370,267)
Net repayments of long-term debt (2,016,711) (2,496,460)
Net proceeds from issuance of senior notes - 14,850,000
Principal payments under capital lease obligations (939,837) 2,085,167
Net proceeds from issuance of common stock 93,207 50,234
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Net cash provided by (used in) financing activities (1,628,753) 11,118,674
----------- -----------
Net increase in cash and cash equivalents 7,794,714 17,415,627
Cash and cash equivalents at beginning of period 30,706,761 7,119,699
----------- -----------
Cash and cash equivalents at end of period $38,501,475 $24,535,326
=========== ===========
See accompanying notes to condensed consolidated financial statements.
See Note 3 - Supplemental disclosure of cash flow information.
5
CONCORD CAMERA CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
January 1, 2000
(unaudited)
Note 1 - General
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles 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 six month period ended January 1, 2000
are not necessarily indicative of the results that may be expected for the year
ending July 1, 2000. For further information, refer to the consolidated
financial statements and footnotes thereto included in the Company's annual
report on Form 10-K for the year ended July 3, 1999.
Concord Camera Corp. (the "Company") operates on a worldwide basis and its
results may be adversely or positively affected by fluctuations of various
foreign currencies against the U.S. Dollar, specifically, the Canadian Dollar,
German Mark, British Pound Sterling, French Franc and Japanese Yen. Each of the
Company's foreign subsidiaries purchases its inventories in U.S. Dollars and
sells the inventories in local currency, thereby creating an exposure to
fluctuations in foreign currency exchange rates. Certain components needed to
manufacture cameras are purchased in Japanese Yen. The impact of foreign
exchange transactions is reflected in the income statement. The Company
continues to analyze the benefits and costs associated with hedging against
foreign currency fluctuations.
Note 2 - Inventories
Inventories are comprised of the following:
January 1, 2000 July 3, 1999
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Raw materials and components $ 13,914,865 $ 15,605,934
Finished goods 10,638,490 6,389,998
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Subtotal 24,553,355 21,995,932
Less: Reserve for inventory obsolescence (1,703,137) (1,375,376)
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$ 22,850,218 $ 20,620,556
============ ============
Note 3 - Supplemental Disclosures of Cash Flow Information:
For the six months ended
January 1, 2000 January 2, 1999
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Cash paid for interest $ 1,475,985 $ 1,526,435
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Cash paid for taxes $ - $ -
============ ============
6
Note 4 -- Litigation and Settlements
Jack C. Benun. On November 18, 1994, the Company filed a demand for arbitration
in New Jersey for money damages in excess of $1.5 million against Jack C. Benun
("Benun"), its former chief executive officer who was discharged for cause in
Fiscal 1995. This action was taken due to Benun's failure to fully compensate
the Company for damages it sustained as a result of Benun's breaching his
employment obligations, his fiduciary obligations and perpetrating frauds upon
the Company, including the misappropriation of funds from the Company. Benun has
submitted a counterclaim in which he alleges wrongful termination of his
employment and denial of benefits by the Company. The Company is vigorously
pursuing its action as well as defending the counterclaim. On August 24, 1999,
the arbitrator upheld the propriety of Concord's termination for cause of Benun.
The arbitrator found that Benun perpetrated frauds on the Company by diverting
and embezzling Company monies. The Company is pursuing damage claims against
Benun related to the frauds and embezzlement.
Fuji. On December 30, 1997, the Company commenced in the United States District
Court of the Southern District of New York (the "Court") an action against Fuji
seeking to enforce the terms of a Settlement Agreement between the Company and
Fuji (the "Settlement Agreement") and to restrain Fuji from terminating the
Settlement Agreement. Under the terms of the Settlement Agreement, the Company
has been granted a worldwide (subject to certain geographic limitations),
non-exclusive license to use certain Fuji technology in connection with the
manufacture and sale of single-use cameras. Termination of the license would
have a material adverse effect on the Company's single-use camera business if
Fuji's patents were found to be valid and infringed by the Company's single-use
products. On January 9, 1998, the Court granted the Company's request for an
order restraining Fuji from terminating the Settlement Agreement. Pending a
final judicial determination of the dispute, the restraining order will continue
in effect as long as the Company refrains from making any further shipments
pursuant to the purchase order which gave rise to the dispute. The parties are
engaged in motion practice, including a motion for summary judgment which has
been filed by Fuji and a motion seeking to preclude Fuji from presenting certain
expert testimony which has been made by the Company.
Kubbany. The Company and its subsidiary have been sued in Panama before the
First Tribunal of Labor of the City of Colon, alleging breach of various
employment-related obligations of Joseph Kubbany, a former executive of Concord
Camera (Panama), Inc. A counterclaim against Kubbany has been filed on behalf of
Concord Camera (Panama), Inc. alleging a breach of his employment obligations by
taking unauthorized travel advances. Evidentiary hearings have been concluded.
Certain additional submissions and document review are taking place. Under
Panamanian law, certain claims made by Concord Camera (Panama), Inc. were not
appropriate for presentation in the Employment Tribunal; therefore, the Company
has filed a civil action against Joseph Kubbany alleging various breaches of his
obligations as the Manager for Concord Camera (Panama), Inc. and for losses
incurred because of excess inventory and the sale of film, and for restitution
of the costs of airplane tickets for his wife paid with Company funds. The
Company has named as a party to the litigation, Dynamic World Trading, Inc. This
case is ongoing.
The Company is involved from time to time in routine legal matters incidental to
its business. In the opinion of the Company's management, the resolution of such
matters, including those described above, will not have a material adverse
effect on its financial position or results of operations.
7
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
Results of Operations
The quarter ended January 1, 2000 compared to the quarter ended January 2, 1999.
Total revenues for the quarters ended January 1, 2000 and January 2,
1999 were approximately $44,522,000 and $31,084,000, respectively, an increase
of approximately $13,438,000 or 43.2%. The increase in revenues for the second
quarter of the Company's fiscal year ending July 1, 2000 ("Fiscal 2000") over
the second quarter of the Company's fiscal year ended July 3, 1999 ("Fiscal
1999") resulted principally from increases in sales to original equipment
manufacturer ("OEM") and retail distribution customers. OEM revenues for the
quarter ended January 1, 2000 and January 2, 1999 were approximately $28,131,000
and $20,000,000, respectively, an increase of approximately $8,131,000 or 40.7%.
Retail sales for the quarters ended January 1, 2000 and January 2, 1999 were
approximately $16,391,000 and $11,084,000, respectively, an increase of
approximately $5,307,000 or 47.9%.
Sales by Concord Camera HK Limited ("Concord HK") for the quarters
ended January 1, 2000 and January 2, 1999 were approximately $33,257,000 and
$24,996,000, respectively, an increase of approximately $8,261,000 or 33.0%. The
increase is due to the increases in sales to OEM and retail distribution
customers. Retail sales for the quarters ended January 1, 2000 and January 2,
1999 were approximately $5,126,000 and $4,996,000, respectively, an increase of
approximately $130,000 or 2.6%. OEM sales for the quarters ended January 1, 2000
and January 2, 1999 were approximately $28,131,000 and $20,000,000,
respectively, an increase of approximately $8,131,000 or 40.7%. The increases in
OEM and retail distribution sales were attributable to increased sales to
preexisting OEM and retail distribution customers together with sales to new OEM
and retail distribution customers.
Consolidated sales of the Company's operations in the United States,
Latin America and Canada ("Concord Americas") for the quarters ended January 1,
2000 and January 2, 1999 were approximately $6,501,000 and $3,839,000,
respectively, an increase of approximately $2,662,000 or 69.3%. In addition,
certain Concord Americas customers increased merchandise purchases on a F.O.B.
Hong Kong basis from Concord HK. During the quarters ended January 1, 2000 and
January 2, 1999, Concord Americas customers purchased approximately $3,549,000
and $2,628,000, respectively, from Concord HK, an increase of approximately
$921,000 or 35.0%. On a combined basis, sales of traditional cameras to Concord
Americas customers for the quarter ended January 1, 2000 increased by 56.3%.
Consolidated sales of Concord Camera (Europe) Ltd., Concord Camera
GmbH, and Concord Camera France S.A.R.L. ("Concord Camera Europe") for the
quarters ended January 1, 2000 and January 2, 1999, were approximately
$4,765,000 and $2,249,000, respectively, an increase of approximately $2,516,000
or 111.9%. The increase in sales was offset by a decrease in sales to certain
European customers on a F.O.B. Hong Kong basis from Concord HK. During the
quarters ended January 1, 2000 and January 2, 1999, European customers purchased
approximately $1,549,000 and $2,356,000, respectively, from Concord HK, a
decrease of approximately $807,000 or 34.3%. On a combined basis, sales to
European customers for the quarter ended January 1, 2000 increased by 37.1%.
Gross Profit
Gross profit, expressed as a percentage of sales, increased to 27.8%
for the quarter ended January 1, 2000 from 25.5% for the quarter ended January
2, 1999. This increase was primarily the result of more favorable absorption of
manufacturing overhead and labor utilization resulting from increased sales and
manufacturing volume and efficiencies. Product development costs were $1,206,000
for the quarter ended January 1, 2000 as compared to $1,192,000 for the quarter
ended January 2, 1999.
Expenses
As a percentage of sales, operating expenses, consisting of selling,
general and administrative and interest expenses, decreased to 17.1% in the
quarter ended January 1, 2000 from 18.2% in the quarter ended January 2, 1999.
Operating expenses increased to $7,595,000 in the quarter ended January 1, 2000
from $5,653,000 in the quarter ended January 2, 1999, an increase of $1,942,000
or 34.4%.
8
Selling expenses increased to $2,995,000 or 6.7% of net sales in the
quarter ended January 1, 2000 from $2,199,000 or 7.1% of net sales in the
quarter ended January 2, 1999. The increase was primarily attributable to
increases in royalty expenses, freight costs and promotional allowances net of
benefits from certain cost cutting activities.
General and Administrative expenses increased to $3,732,000 or 8.4% of
net sales in the quarter ended January 1, 2000 from $2,503,000 or 8.1% of net
sales in the quarter ended January 2, 1999.
Interest expenses decreased to $868,000 or 1.9% of net sales for the
quarter ended January 1, 2000 from $951,000 or 3.0% of net sales in the quarter
ended January 2, 1999.
Other Income, Net
Other income, net was approximately $99,000 and $218,000 in the
quarters ended January 1, 2000 and January 2, 1999, respectively. Other income,
net includes directors' fees, certain public relations costs, foreign exchange
gains and losses and interest income.
Income Taxes
The Company's provision for income taxes for the quarter ended January
1, 2000 is primarily related to the earnings of the Company's Far East and
United States operations, net of benefits relating to operating loss
carryforwards and overpayments/refunds on the Company's other subsidiaries.
Net Income
As a result of the matters described above, the Company had net income
of approximately $4,518,000 or $0.37 per diluted share in the quarter ended
January 1, 2000, as compared to net income of $2,328,000 or $0.20 per diluted
share in the quarter ended January 2, 1999. The Company achieved its profit plan
for the second quarter and is in line to achieve its previously announced
projected profit of $13.5 to $14 million or $1.12 to $1.16 per diluted share for
the current fiscal year.
9
Six months ended January 1, 2000 compared to the six months ended January 2,
1999.
Total revenues for the six months ended January 1, 2000 and January 2,
1999 were approximately $85,760,000 and $62,107,000, respectively, an increase
of approximately $23,653,000 or 38.1%. The increase in revenues for the six
month period of the Company's fiscal year ending July 1, 2000 ("Fiscal 2000")
over the six month period of the Company's fiscal year ended July 3, 1999
("Fiscal 1999') resulted principally from increases in sales to original
equipment manufacturer ("OEM") and retail distribution customers. OEM revenues
for the six months ended January 1, 2000 and January 2, 1999 were approximately
$56,214,000 and $40,997,000, respectively, an increase of approximately
$15,217,000 or 37.1%. Retail sales for the six months ended January 1, 2000 and
January 2, 1999 were approximately $29,546,000 and $21,110,000, respectively, an
increase of approximately $8,436,000 or 40.0%.
Sales by Concord Camera HK Limited ("Concord HK") for the six months
ended January 1, 2000 and January 2, 1999 were approximately $69,522,000 and
$52,265,000, respectively, an increase of approximately $17,257,000 or 33.0%.
The increase is due to the increases in sales to OEM and retail distribution
customers. Retail sales for the six months ended January 1, 2000 and January 2,
1999 were approximately $13,309,000 and $11,268,000, respectively, an increase
of approximately $2,041,000 or 18.1%. OEM revenues for the six months ended
January 1, 2000 and January 2, 1999 were approximately $56,213,000 and
$40,997,000, respectively, an increase of approximately $15,216,000 or 37.1%.
The increases in OEM and retail distribution sales were attributable to
increased sales to preexisting OEM and retail distribution customers together
with sales to new OEM and retail distribution customers.
Consolidated sales of the Company's operations in the United States,
Latin America and Canada ("Concord Americas") for the six months ended January
1, 2000 and January 2, 1999 were approximately $8,988,000 and $5,690,000,
respectively, an increase of approximately $3,298,000 or 58.0%. In addition
certain Concord Americas customers increased merchandise purchases on a F.O.B.
Hong Kong basis from Concord HK. During the six months ended January 1, 2000 and
January 2, 1999, Concord Americas customers purchased approximately $8,967,000
and $6,396,000, respectively, from Concord HK, an increase of approximately
$2,571,000 or 40.2%. On a combined basis, sales of traditional cameras to
Concord Americas customers in the six months ended January 1, 2000 increased by
48.6%.
Consolidated sales of Concord Camera (Europe) Ltd., Concord Camera
GmbH, and Concord Camera France S.A.R.L. ("Concord Camera Europe") for the six
months ended January 1, 2000 and January 2, 1999, were approximately $7,250,000
and $4,152,000, respectively, an increase of approximately $3,098,000 or 74.6%.
The increase in sales was offset by a decrease in sales to certain European
customers on a F.O.B. Hong Kong basis from Concord HK. During the six months
ended January 1, 2000 and January 2, 1999, European customers purchased
approximately $4,314,000 and $4,796,000, respectively, from Concord HK, a
decrease of approximately $482,000 or 10.0%. On a combined basis, sales to
European customers for the six months ended January 1, 2000 increased by 29.2%.
Gross Profit
Gross profit, expressed as a percentage of sales, increased to 27.6%
for the six months ended January 1, 2000 from 26.4% for the six months ended
January 2,1999. This increase was primarily the result of more favorable
absorption of manufacturing overhead and labor utilization resulting from
increased sales and manufacturing volume and efficiencies. Product development
costs were $2,388,000 for the six months ended January 1, 2000 as compared to
$2,436,000 for the six months ended January 2, 1999.
Expenses
As a percentage of sales, operating expenses, consisting of selling,
general and administrative and interest expenses, decreased to 17.2% in the six
months ended January 1, 2000 from 18.2% in the six months ended January 2, 1999.
Operating expenses increased to $14,790,000 in the six months ended January 1,
2000 from $11,322,000 in the six months ended January 2, 1999, an increase of
$3,468,000 or 30.6%.
10
Selling expenses increased to $5,511,000 or 6.4% of net sales in the
six months ended January 1, 2000 from $4,592,000 or 7.4% of net sales in the six
months ended January 2, 1999. The increase was primarily attributable to
increases in royalty expenses, freight costs and promotional allowances net of
benefits from certain cost cutting activities.
General and Administrative expenses increased to $7,537,000 or 8.8% of
net sales in the six months ended January 1, 2000 from $4,975,000 or 8.0% of net
sales in the six months ended January 2, 1999.
Interest expenses decreased to $1,742,000 or 2.0% of net sales for the
six months ended January 1, 2000 from $1,756,000 or 2.8% of net sales in the six
months ended January 2, 1999.
Other Income, Net
Other income, net was approximately $227,000 and $132,000 in the six
months ended January 1, 2000 and January 2, 1999, respectively. Other income,
net includes directors' fees, certain public relations costs, foreign exchange
gains and losses and interest income.
Income Taxes
The Company's provision for income taxes for the six months ended
January 1, 2000 is primarily related to the earnings of the Company's Far East
and United States operations, net of benefits relating to operating loss
carryforwards and overpayments/refunds on the Company's other subsidiaries.
Net Income
As a result of the matters described above, the Company had net income of
approximately $8,414,000 or $0.70 per diluted share in the six months ended
January 1, 2000, as compared to net income of $4,786,000 or $0.41 per diluted
share in the six months ended January 2, 1999. The Company achieved its profit
plan for the second six months and is in line to achieve its previously
announced projected profit of $13.5 to $14 million or $1.12 to $1.16 per diluted
share for the current fiscal year.
Liquidity and Capital Resources
At January 1, 2000, the Company had working capital of $43,272,000 as
compared to $37,447,000 at July 3, 1999. Cash flow provided by operating
activities was approximately $13,993,000 and $11,181,000 for the six months
ended January 1, 2000 and January 2, 1999, respectively. Capital expenditures
for the six months ended January 1, 2000 and January 2, 1999 were approximately
$3,810,000 and $3,518,000, respectively. The Company's principal funding
requirement has been, and is expected to continue to be, the financing of
accounts receivable and inventory. Additionally, the combined United States
operation is dependent upon funding received from the foreign operations.
Senior Notes Payable. On July 30, 1998, the Company consummated a private
placement of $15 million of senior notes. The notes bear interest at 11%, and
the maturity date is July 15, 2005. Interest payments are due quarterly. The
indenture governing the notes contains certain restrictive covenants relating
to, among other things, incurrence of additional indebtedness and dividend and
other payment restrictions affecting subsidiaries.
Hong Kong Credit Facility. During the second quarter of Fiscal 2000, Concord HK
consummated a $26.2 million credit facility (the "HK Facility") that is
guaranteed by the Company, is secured by certain accounts receivables of the
Company's Hong Kong operations and bears interest at 0.5% above the prime
lending rate. The HK Facility is comprised of 1) a $5.6 million Import Facility,
2) a $2.6 million Packing Credit and Export Facility, and 3) an $18 million
Accounts Receivable Financing Facility. Availability under the accounts
receivable financing facility is subject to advance formulas based on eligible
accounts receivable with no minimum borrowings. The Company utilized the HK
Facility to replace a Non-notification Factoring with Recourse Facility it had
with a Hong Kong bank. At January 1, 2000, approximately $8,049,000 was
outstanding and classified as short-term debt.
Other Arrangements and Future Cash Commitments. Management believes that
anticipated cash flow from operations together with financing from the Senior
Notes Payable and the HK Facility, or replacement facilities, will be sufficient
to fund its operating cash needs for the foreseeable future.
11
Impact of Year 2000
In the Company's previous filings with the Securities and Exchange Commission on
Forms 10-Q and 10-K, extensive descriptions of the Company's Year 2000 (Y2K)
initiative were presented. Nothing has come to the Company's attention which
would cause it to believe that its Y2K compliance effort was not successful.
While the Company will continue to monitor for Y2K related problems, to date no
significant Y2K issues have been encountered and the Company does not currently
anticipate incurring additional expenses to address Y2K-related issues.
Forward-Looking Statements
The statements contained in this report that are not historical facts
are "forward-looking statements" (as such term is defined in the Private
Securities Litigation Reform Act of 1995), which can be identified by the use of
forward-looking terminology such as: "estimates," "projects," "anticipates,"
"expects," "intends," "believes," or the negative thereof or other variations
thereon or comparable terminology, or by discussions of strategy that involve
risks and uncertainties. The Company's actual results could differ materially
from those anticipated in such forward-looking statements. Management wishes to
caution the reader that these forward-looking statements, such as statements
regarding development of the Company's business, the Company's anticipated
capital expenditures, projected profits and other statements contained in this
report regarding matters that are not historical facts, are only estimates or
predictions. No assurance can be given that future results will be achieved.
Actual events or results may differ materially as a result of risks facing the
Company or actual results differing from the assumptions underlying such
statements. In particular, expected revenues could be adversely affected by
production difficulties or economic conditions negatively affecting the market
for the Company's products. Obtaining the results expected from the introduction
of the Company's new products will require timely completion of development,
successful ramp-up of full-scale production on a timely basis and customer and
consumer acceptance of those products. In addition, the OEM agreements require
an ability to meet high quality and performance standards, successful
implementation of production at greatly increased volumes and an ability to
sustain production at greatly increased volumes, as to all of which there can be
no assurance. There also can be no assurance that products under development
will be successfully developed or that once developed such products will be
commercially successful.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company, as a result of its global operating and financial
activities, is exposed to changes in interest rates and foreign currency
exchange rates which may adversely affect its results of operations and
financial position. In seeking to minimize the risks and/or costs associated
with such activities, the Company manages exposures to changes in interest rates
and foreign currency rates through its regular operating and financing
activities. Each of the Company's foreign subsidiaries purchases its inventories
in U.S. Dollars and sells them in local currency, thereby creating an exposure
to fluctuations in foreign currency exchange rates. Certain components needed to
manufacture cameras are purchased in Japanese Yen. The impact of foreign
exchange transactions is reflected in the profit and loss statement. The
Company's hedging activities were immaterial and as of January 1, 2000 there
were no forward exchange contracts outstanding. The Company continues to analyze
the benefits and costs associated with hedging against foreign currency
fluctuations. The Company's exposure to changes in interest rates results from
its borrowing activities used to meet its liquidity needs. Long-term debt is
generally used to finance long-term investments, while short-term debt is used
to meet working capital requirements. Derivative instruments are not presently
used to adjust the Company's interest rate risk profile. The Company does not
utilize financial instruments for trading or speculative purposes, nor does it
utilize leveraged financial instruments.
12
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
Exhibit No. Exhibit Method of Filing
----------- ------- ----------------
3.1 Certificate of Incorporation of the Company Incorporated by reference to the Company's Form 10-Q
as amended for the quarter ended October 2, 1999.
3.2 Restated By-Laws of the Company Incorporated by reference to the Company's Form 10-K
for the year ended June 30, 1997.
4.1 Form of Common Stock Certificate Incorporated by reference to the Company's Form S-18
(No. 33-21156) declared effective July 12, 1988.
4.2 Purchase Agreement, dated July 30, 1998, Incorporated by reference to the Company's Form S-4
between Dreyfus High Yield Strategies (No. 33-64713) dated September 30, 1998.
Fund and the Company
4.3 Indenture, dated July 30, 1998, between Incorporated by reference to the Company's Form S-4
Bankers Trust Company and the Company (No. 33-64713) dated September 30, 1998.
4.4 Registration Rights Agreement, dated Incorporated by reference to the Company's Form S-4
July 30, 1998, between Dreyfus High (No. 33-64713) dated September 30, 1998.
Yield Strategies Fund and the Company
4.5 Hong Kong Credit Facility, dated Filed herewith.
September 9, 1999, between The
Hongkong and Shanghai Banking
Corporation Ltd. and the Company
27 Financial Data Schedule Filed herewith.
b. Reports on Form 8-K
No reports on Form 8-K were filed by the registrant during the quarter
ended January 1, 2000.
13
S I G N A T U R E
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CONCORD CAMERA CORP.
--------------------
(Registrant)
BY: /s/Harlan I. Press
------------------
(Signature)
Harlan I. Press
Corporate Controller and Assistant Secretary
DULY AUTHORIZED AND PRINCIPAL ACCOUNTING
OFFICER
DATE: February 4, 2000