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 2, 1999 - Commission file Number 0-17038
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Concord Camera Corp.
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(Exact names of registrant as specified in its charter)
New Jersey 13-3152196
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(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 office) (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
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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 -- 11,238,013 shares as of February 5, 1999
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Page 1 of 14
Exhibit Index on Page 13
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
Concord Camera Corp.
Consolidated Balance Sheets
January 2, 1999 June 30, 1998
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(unaudited)
Current assets:
Cash $ 24,535,326 $ 7,119,699
Accounts receivable, net 17,681,780 19,961,534
Inventories 18,998,471 21,458,595
Prepaid expenses and other current assets 4,046,117 3,238,129
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Total current assets 65,261,694 51,777,957
Plant and equipment, net 17,900,766 15,930,486
Goodwill, net 517,519 727,633
Other assets 4,666,102 3,645,703
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Total assets $ 88,346,081 $ 72,081,779
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Current liabilities:
Short-term debt $ 7,451,745 $ 10,822,012
Current portion of long-term debt -- 35,676
Current obligations under capital leases 1,564,148 870,173
Accounts payable 12,951,222 14,213,757
Accrued expenses 6,862,864 4,418,604
Income taxes payable 784,994 379,662
Other current liabilities 451,961 224,781
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Total current liabilities 30,066,934 30,964,665
Deferred income taxes 689,169 689,169
Senior Notes 14,850,000 --
Long-term debt -- 2,460,784
Obligations under capital leases 2,801,058 1,409,865
Other long-term liabilities 252,547 452,548
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Total liabilities 48,659,708 35,977,031
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Stockholders' equity:
Common stock, no par value, 40,000,000 authorized; 11,238,013 and
11,214,451 issued as of January 2, 1999, and June 30, 1998, respectively 40,144,793 40,094,559
Paid in capital 1,033,553 850,786
Retained earnings (deficit) 3,163,977 (1,622,215)
Notes receivable arising from common stock purchase agreements (2,837,647) (2,765,463)
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41,504,676 36,557,667
Less: treasury stock, at cost; 366,763 and 63,553 shares, respectively (1,818,303) (452,919)
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Total stockholders' equity
39,686,373 36,104,748
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Total liabilities and stockholders' equity
$ 88,346,081 $ 72,081,779
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See accompanying notes to consolidated financial statements.
2
Concord Camera Corp.
Consolidated Income Statements
(Unaudited)
For the quarter ended
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January 2, 1999 December 31, 1997
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Net sales $ 31,083,585 $ 31,329,131
Cost of products sold 23,144,944 23,016,433
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Gross profit 7,938,641 8,312,698
Selling expenses 2,198,854 2,654,637
General and administrative expenses 2,424,885 2,716,581
Financial expenses 950,521 405,264
Other (income), net (218,017) (52,720)
Legal expenses and settlement costs 78,601 55,868
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Income before income taxes 2,503,797 2,533,068
Provision for income taxes 176,000 196,266
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Net Income $ 2,327,797 $ 2,336,802
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Weighted average common shares outstanding-basic 10,944,819 10,880,473
Incremental shares using treasury stock method 653,500 600,589
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Weighted average common shares outstanding-diluted 11,598,319 11,481,062
============ ============
Basic earnings per share $ 0.21 $ 0.21
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Diluted earnings per share $ 0.20 $ 0.20
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See accompanying notes to consolidated financial statements.
3
Concord Camera Corp.
Consolidated Income Statements
(Unaudited)
For the six months ended
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January 2, 1999 December 31, 1997
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Net sales $ 62,107,412 $ 51,135,413
Cost of products sold 45,725,825 37,529,015
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Gross profit 16,381,587 13,606,398
Selling expenses 4,592,033 4,351,104
General and administrative expenses 4,881,215 5,101,770
Financial expenses 1,755,710 804,185
Other (income), net (131,922) (122,892)
Legal expenses and settlement costs 93,366 97,462
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Income before income taxes 5,191,186 3,374,769
Provision for income taxes 405,000 266,548
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Net Income $ 4,786,186 $ 3,108,221
============ ============
Weighted average common shares outstanding- basic 11,045,548 10,880,473
Incremental shares using treasury stock method 688,669 522,582
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Weighted average common shares outstanding-diluted 11,734,217 11,403,055
============ ============
Basic earnings per share $ 0.43 $ 0.29
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Diluted earnings per share $ 0.41 $ 0.27
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See accompanying notes to consolidated financial statements.
4
Concord Camera Corp.
Consolidated Statements of Cash Flows
(Unaudited)
For the six months ended
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January 2, 1999 December 31, 1997
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Cash flows from operating activities:
Net income $ 4,786,186 $ 3,108,221
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Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 2,051,698 1,624,807
Interest income on notes receivable arising from common stock agreements (72,184) (72,184)
Non-cash compensation expense 182,767 --
Change in assets and liabilities:
(Increase) decrease in accounts receivable 2,279,754 (8,461,714)
(Increase) decrease in inventories 2,460,124 (5,242,967)
(Increase) in prepaid expenses and other current assets (859,622) (1,348,254)
(Increase) decrease in other assets (1,462,259) 582,860
Increase (decrease) in accounts payable (1,262,535) 10,103,985
Increase in accrued expenses 2,444,260 1,575,095
Increase in income taxes payable 405,332 324,979
Increase (decrease) in other current liabilities 227,180 (143,361)
Increase in deferred income taxes -- 45
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Total adjustments 6,394,515 (1,056,709)
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Net cash provided by operating activities 11,180,701 2,051,512
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Cash flows from investing activities:
Purchase of property, plant and equipment (3,518,365) (2,163,501)
Purchase of Treasury Stock (1,365,384) --
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Net cash (used in) investing activities (4,883,749) (2,163,501)
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Cash flows from financing activities:
Net borrowings under short-term debt agreements (3,370,267) (1,023,210)
Net borrowings (repayments) of long-term debt 12,353,540 (16,143)
Principal payments under capital lease obligations 2,085,167 (103,497)
Net proceeds from issuance of common stock 50,234 --
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Net cash provided by (used in) financing activities 11,118,674 (1,142,850)
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Net increase (decrease) in cash 17,415,627 (1,254,839)
Cash at beginning of period 7,119,699 5,297,820
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Cash at end of period $ 24,535,326 $ 4,042,981
============ ============
See accompanying notes to consolidated financial statements.
See Note 3 - Supplemental disclosure of cash flow information.
5
CONCORD CAMERA CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
January 2, 1999
(unaudited)
Note 1 - General
In the opinion of Concord Camera Corp. ("the Company"), the accompanying
unaudited financial statements contain all adjustments, including normal
recurring adjustments, necessary for the fair presentation of the Company's
financial position as of January 2, 1999, and the results of operations and cash
flows for the periods ended January 2, 1999 and December 31, 1997.
The Notes to Consolidated Financial Statements, which are included in the
Company's 1998 Form 10-K Annual Report, should be read with the accompanying
financial statements.
In 1997, the Financial Accounting Standards Board ("FASB") issued Statement No.
128, Earnings per Share ("Statement 128"). Statement 128 replaced the
calculation of primary and fully diluted earnings per share with basic and
diluted earnings per share. Unlike primary earnings per share, basic earnings
per share excludes any dilutive effects of options, warrants and convertible
securities. Diluted earnings per share are calculated on a basis similar to
fully diluted earnings per share. All applicable earnings per share amounts have
been presented, and where necessary, restated to conform to the Statement 128
requirements.
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 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 continues to analyze the benefits and
costs associated with hedging against foreign currency fluctuations.
Note 2 - Inventories
Inventories are comprised of the following:
January 2, 1999 June 30, 1998
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Raw materials and components $11,559,629 $ 13,033,653
Finished goods 7,438,842 8,424,942
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$18,998,471 $ 21,458,595
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Note 3 - Supplemental Disclosures of Cash Flow Information:
For the Six Months ended
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January 2, 1998 December 31,1997
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Cash paid for interest $ 1,526,435 $ 640,176
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Cash paid for taxes $ -- $ 40,000
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6
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
Results of Operations
The quarter ended January 2, 1999 compared to the quarter ended December 31,
1997.
Total revenues for the quarters ended January 2, 1999 and December 31,
1997 were approximately $31,084,000 and $31,329,000, respectively, a decrease of
approximately $245,000 or 0.8%. The decrease in revenues for the second quarter
of the company's fiscal year ended June 30, 1999 ("Fiscal 1999") over the second
quarter of the company's fiscal year ended June 30, 1998 ("Fiscal 1998')
resulted principally from decreases in sales to original equipment manufacturer
("OEM") customers, net of increases in sales to retail customers. OEM revenues
for the quarter ended December 31, 1997 included approximately $7,900,000 of
non-recurring sales. For comparison purposes, excluding the approximate
$7,900,000 of non-recurring sales in the second fiscal quarter of Fiscal 1998,
net sales for the second quarter of Fiscal 1999 were $31,084,000 versus
$23,429,000 for the second quarter of last year, an increase of approximately
$7,655,000 or 32.7%.
Sales by Concord Camera HK Limited ("Concord HK") for the quarters
ended January 2, 1999 and December 31, 1997 were approximately $24,996,000 and
$24,666,000, respectively, an increase of approximately $330,000 or 1.3%. The
increase is due primarily to the increases in sales to retail customers net of
decreases in sales to OEM customers. Retail sales for the quarters ended January
2, 1999 and December 31, 1997 were approximately $4,997,000 and $3,674,000,
respectively, an increase of approximately $1,340,000 or 36.5%. OEM sales for
the quarters ended January 2, 1999 and December 31, 1997 were approximately
$20,000,000 and $20,992,000, respectively, a decrease of approximately $992,000
or 4.7%. The increases in retail sales were due to increases in traditional and
single-use camera revenues by the Company's retail customers.
Consolidated sales of the Company's operations in the United States,
Latin America and Canada ("Concord Americas") for the quarters ended January 2,
1999 and December 31, 1997 were approximately $3,839,000 and $4,142,000,
respectively, a decrease of approximately $303,000 or 7.3%. In addition certain
Americas customers decreased merchandise purchases on a F.O.B. Hong Kong basis
from Concord HK. During the quarters ended January 2, 1999 and December 31,
1997, Concord Americas customers purchased approximately $2,628,000 and
$2,780,000, respectively, from Concord HK, a decrease of approximately $152,000
or 5.5%. If this decrease were added to the quarter ended January 2, 1999
American sales, sales of traditional cameras to Concord Americas customers,
would have decreased by 6.6%.
Consolidated sales of Concord Camera Europe, Concord Camera GmbH, and
Concord Camera France ("Concord Camera Europe") for the quarters ended January
2, 1999 and December 31, 1997, were approximately $2,249,000 and $2,521,000,
respectively, a decrease of approximately $272,000 or 10.8%. The decrease in
sales was offset by an increase in sales to certain European customers on a
F.O.B. Hong Kong basis from Concord HK. During the quarters ended January 2,
1999 and December 31, 1997, European customers purchased approximately
$2,356,000 and $657,000, respectively, from Concord HK, an increase of
approximately $1,699,000 or 258.6%. If this increase were added to the sales for
the quarter ended January 2, 1999, European sales to European customers would
have increased by 44.9%.
Gross Profit
Gross profit, expressed as a percentage of sales, decreased to 25.5%
for the quarter ended January 2, 1999 from 26.5% for the quarter ended December
31, 1997. This decrease was primarily the result of increased product
development costs associated with new products. Product development costs were
$1,192,000 for the quarter ended January 2, 1999 as compared to $950,000 for the
quarter ended December 31, 1997, an increase of approximately $242,000 or 25.5%.
Expenses
As a percentage of sales, operating expenses, consisting of selling,
general and administrative and financial expenses, decreased to 17.9% in the
quarter ended January 2, 1999 from 18.4% in the quarter ended December 31, 1997.
Operating expenses decreased to $5,574,000 in the quarter ended January 2, 1999
from $5,776,000 in the quarter ended December 31, 1997, a decrease of $202,000
or 3.5%.
7
Selling expenses decreased to $2,199,000 or 7.1% of net sales in the
quarter ended January 2, 1999 from $2,655,000 or 8.5% of net sales in the
quarter ended December 31, 1997. The decrease was primarily attributable to
decreases in royalty expenses and promotional allowances and the benefits from
the consolidation of warehouse facilities undertaken by the Company in Fiscal
1996.
General and Administrative expenses decreased to $2,425,000 or 7.8% of
net sales in the quarter ended January 2, 1999 from $2,717,000 or 8.7% of net
sales in the quarter ended December 31, 1997.
Financial expenses increased to $951,000 or 3.1% of net sales for the
quarter ended January 2, 1999 from $405,000 or 1.3% of net sales in the quarter
ended December 31, 1997. Such increase was primarily a result of an increase in
average debt outstanding during the quarter ended January 2, 1999.
Litigation and settlement costs in the quarters ended January 2, 1999
and December 31, 1997 were approximately $79,000 and $56,000, respectively, an
increase of approximately $23,000. The costs were incurred in connection with
non-operating matters, primarily the arbitration against Jack C. Benun, the
Company's former Chairman and CEO.
Other (income), Net
Other (income), net was approximately $218,000 and $53,000 in the
quarters ended January 2, 1999 and December 31, 1997, 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
2, 1999 is primarily related to the earnings of the Company's Far East and
domestic 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 $2,328,000 or $0.20 per diluted share in the quarter ended
January 2, 1999, as compared to net income of $2,337,000 or $.20 per diluted
share in the quarter ended December 31, 1997. The Company achieved its profit
plan for the second quarter and is in line to achieve its previously announced
projected profit of $7 to $8 million or $0.58 to $0.66 per diluted share for the
current fiscal year.
8
Six months ended January 2, 1999 compared to the six months ended December 31,
1997.
Total revenues for the six months ended January 2, 1999 and December
31, 1997 were approximately $62,107,000 and $51,135,000, respectively, an
increase of approximately $10,972,000 or 21.5%. The increase in revenues for the
six months of Fiscal 1999 over the six months of Fiscal 1998 resulted
principally from increases in sales to OEM and retail customers. OEM Revenues
for the six months ended December 31, 1997 included approximately $9,200,000 of
non-recurring sales. For comparison purposes, excluding the approximate
$9,200,000 of non-recurring sales in the six months of Fiscal 1998, net sales
for the six months of Fiscal 1999 were $62,107,000 versus $41,935,000 for the
six months of last year, an increase of approximately $20,172,000 or 48.1%.
Sales by Concord Camera HK Limited ("Concord HK") for the six months
ended January 2, 1999 and December 31, 1997 were approximately $52,155,000 and
$40,378,000, respectively, an increase of approximately $11,777,000 or 29.2%.
The increase is due primarily to the increases in sales to OEM and retail
customers. OEM sales for the six months ended January 2, 1999 and December 31,
1997 were approximately $40,905,000 and $31,930,000, respectively, an increase
of approximately $8,975,000 or 28.1%. Retail sales for the six months ended
January 2, 1999 and December 31, 1997 were approximately $11,251,000 and
$8,447,000, respectively, an increase of approximately $2,804,000 or 33.2%.
These increases were due to increases in traditional and single-use camera
revenues by the Company's OEM and retail customers.
Consolidated sales of Concord Americas for the six months ended January
2, 1999 and December 31, 1997 were approximately $5,807,000 and $6,643,000,
respectively, a decrease of approximately $836,000 or 12.6%. This decrease in
sales was offset by an increase in sales to certain Americas customers on a
F.O.B. Hong Kong basis from Concord HK. During the six months ended January 2,
1999 and December 31, 1997 Concord Americas customers purchased approximately
$6,431,000 and $5,411,000, respectively, from Concord HK, an increase of
approximately $1,020,000 or 18.9%. If this increase were added to the six months
ended January 2, 1999, Concord Americas sales, sales of traditional cameras to
Concord Americas customers would have increased by 1.5%.
Consolidated sales of Concord Camera Europe for the six months ended
January 2, 1999 and December 31, 1997, were approximately $4,145,000 and
$3,991,000, respectively, an increase of approximately $154,000 or 3.8%. In
addition certain European customers increased merchandise purchases on a F.O.B.
Hong Kong basis from Concord HK. During the six months ended January 2, 1999 and
December 31, 1997, European customers purchased approximately $4,796,000 and
$2,537,000, respectively, from Concord HK, an increase of approximately
$2,259,000 or 89.0%. If this increase were added to the sales for the six months
ended January 2, 1999, Concord Camera Europe sales to European customers would
have increased by 37.0%.
Gross Profit
Gross profit, expressed as a percentage of sales, decreased to 26.3%
for the six months ended January 2, 1999 from 26.6% for the six months ended
December 31, 1997. This decrease was primarily the result of increased product
development costs associated with new products. Product development costs were
$2,436,000 for the six months ended January 2, 1999 as compared to $1,713,000
for the six months ended December 31, 1997, an increase of approximately
$723,000 or 42.2%.
Expenses
As a percentage of sales, operating expenses, consisting of selling,
general and administrative and financial expenses, decreased to 18.1% in the six
months ended January 2, 1999 from 20.0% in the six months ended December 31,
1997. Operating expenses increased to $11,229,000 in the six months ended
January 2, 1999 from $10,257,000 in the six months ended December 31, 1997, an
increase of $972,000 or 9.5%.
Selling expenses increased to $4,592,000 or 7.4% of net sales in the
six months ended January 2, 1999 from $4,351,000 or 8.5% of net sales in the six
months ended December 31, 1997. The increase was primarily attributable to the
Company's increased volume and increases in royalty expenses and promotional
allowances partially offset by the benefits from the consolidation of warehouse
facilities undertaken by the Company in Fiscal 1996.
General and Administrative expenses decreased to $4,881,000 or 7.9% of
net sales in the six months ended January 2, 1999 from $5,102,000 or 10.0% of
net sales in the six months ended December 31, 1997.
9
Financial expenses increased to $1,756,000 or 2.8% of net sales for the
six months ended January 2, 1999 from $804,000 or 1.6% of net sales in the six
months ended December 31, 1997. Such increase was primarily a result of an
increase in average debt outstanding during the six months ended January 2,
1999.
Litigation and settlement costs in the six months ended January 2, 1999
and December 31, 1997 were approximately $93,000 and $97,000, respectively. The
costs were incurred in connection with non-operating matters, primarily the
arbitration against Jack C. Benun, the Company's former Chairman and CEO.
Other (income), Net
Other (income), net was approximately $132,000 and $123,000 in the six
months ended January 2, 1999 and December 31, 1997, 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 2, 1999 is primarily related to the earnings of the Company's Far East
and domestic 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 $4,786,000 or $0.41 per diluted share in the six months ended
January 2, 1999, as compared to net income of $3,108,000 or $.27 per diluted
share in the six months ended December 31, 1997. The Company achieved its profit
plan for the six months and is in line to achieve its previously announced
projected profit of $7 to $8 million or $0.58 to $0.66 per diluted share for the
current fiscal year.
Liquidity and Capital Resources
At January 2, 1999, the Company had working capital of $35,195,000 as
compared to $20,813,000 at June 30, 1998. Cash flow provided by operating
activities was approximately $11,181,000 and $2,052,000 for the six months ended
January 2, 1999 and December 31, 1997, respectively. Capital expenditures for
the six months ended January 2, 1999 and December 31, 1997 were approximately
$3,518,000 and $2,164,000, 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
agreement contains certain restrictive covenants relating to, among other
things, incurrence of additional indebtedness and dividend and other payment
restrictions affecting subsidiaries.
Mortgage Payable. On April 9, 1998, the Company entered into a 15 month
$2,100,000 mortgage loan agreement that is secured by the Company-owned
manufacturing facilities located in Baoan County, Shenzhen Municipal, Peoples
Republic of China and bears interest at 12.986%. The mortgage loan agreement
requires monthly payments of interest only and a balloon payment of $2,100,000
on July 9, 1999.
Non-Notification Factoring with Recourse Facility. During the last quarter of
Fiscal 1998, Concord HK consummated a $10,000,000 Non-Notification Factoring
with Recourse Facility, (the "Factoring Facility"), that is guaranteed by the
Company, is secured by certain accounts receivables of the Company's Hong Kong
operations and bears interest at 1.5% above the prime lending rate. Availability
is subject to advance formulas based on eligible accounts receivable with no
minimum borrowings. The Company utilized the Factoring Facility during the
fourth quarter of Fiscal 1998 to replace a one-year $1,500,000 revolving credit
facility with an U.S. bank. At January 2, 1999, approximately $3,365,000 was
outstanding and classified as short-term debt.
10
U.S. Credit Facility. The Company has a $4,500,000 credit facility, (the "U.S.
Credit Facility"), which expires on May 31, 1999, that is secured by accounts
receivable, inventory and other related assets of the Company's United States
operations and bears interest at 1.5% above the prime lending rate, which was
8.5% at January 2, 1999. Availability is subject to advance formulas based on
eligible inventory and accounts receivable with interest calculated on borrowing
of $1,500,000. At January 2, 1999, approximately $1,551,000 was outstanding and
classified as short-term debt under the U.S. Credit Facility.
Hong Kong Credit Facility. Concord HK has credit facilities, (the "HK
Facilities"), that provides Concord HK with up to $2,700,000 of financing as
follows: letters of credit and standby letters of credit of up to $1,800,000 and
packing loans of up to $900,000. As of January 2, 1999, approximately $435,000
was utilized under the HK Facilities. The HK Facilities, which is payable on
demand, bears interest at 2% above the prime lending rate which was 10%on
January 2, 1999. Concord guarantees all amounts outstanding under the HK
Facilities.
Canadian Working Capital Facility. On November 25, 1996, the Company obtained a
$990,000 working capital facility, (the "Canadian Facility"), with a Canadian
bank, which is secured by accounts receivable, inventory and other related
assets of the Company's Canadian operations and bears interest at 1% above the
prime lending rate, which was 7.75% at January 2, 1999. Availability under the
Canadian Facility is subject to advance formulas based on eligible accounts
receivable and seasonable inventory eligibility with no minimum borrowings and
is subject to monthly covenant requirements. No funds were utilized on January
2, 1999.
Other Arrangements and Future Cash Commitments. Management believes that
anticipated cash flow from operations together with financing from the Senior
Notes Payable, the Factoring Facility, the U.S. Credit Facility, the HK
Facilities, and the Canadian Facility, or replacement facilities, will be
sufficient to fund its operating cash needs for the foreseeable future.
Impact of Year 2000
The Year 2000 issue is the result of computer-controlled systems using two
digits rather than four to define the applicable year. For example, computer
programs that have time-sensitive software may recognize a date ending in "00"
as the year 1900 rather than the year 2000. This could result in system failure
or miscalculations causing disruptions of operations including, among other
things, a temporary inability to process transactions, send invoices, or engage
in similar normal business activities.
Based on an assessment, the Company determined that it will be required to
modify or replace portions of its software and hardware so that its systems will
function properly with respect to dates in the year 2000 and thereafter. The
Company presently believes that with modifications to existing software and
conversions to new software and hardware, the Year 2000 issue will not pose
significant operational problems for its systems. However, if such modifications
and conversions are not made, or are not completed in timely fashion, the Year
2000 problems could have a material impact on the operations of the Company.
The Company is continuing to contact all of its significant suppliers and large
customers to determine the extent to which the Company's interface systems are
vulnerable to those third parties' failure to remediate their own Year 2000
issues. The Company's total Year 2000 project cost and estimates to complete
include the estimated costs and time associated with the impact of third party
Year 2000 issues based on presently available information is approximately
$100,000. However, there can be no guarantee that the systems of other companies
on which the Company's systems rely will be converted on a timely basis and will
not have a material adverse effect on the Company's systems.
The Company is actively engaged in utilizing both internal and external
resources to reprogram, or replace, and test its software and hardware for Year
2000 compliance. The Company's objective is to complete the Year 2000 project
not later than July 1, 1999, which is prior to any anticipated impact on its
operating systems. The Fiscal 1999 cost of the Year 2000 project is not expected
to have a material effect on the results of operations.
11
The costs of the project and the date which the Company has established to
complete the Year 2000 modifications are based on management's best estimates,
which were derived utilizing numerous assumptions of future events, including
the continued availability of certain resources, third party modification plans
and other factors. However, there can be no guarantee that these estimates will
be achieved and actual results could differ materially from those anticipated.
Specific factors that might cause such material differences include, but are not
limited to, the availability and cost of personnel trained in this area, the
ability to locate and correct all relevant computer codes, and similar
uncertainties.
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 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 for
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. To obtain 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 2, 1999 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 2. OTHER INFORMATION
a. Item 6. Reports on Form 8-K
None
b. Exhibits
Exhibit No. Exhibit
----------- -------
27 Financial Data Schedule
10.1 Lease Agreement between Prologis Trust,
a Maryland real estate investment trust,
and the Company.
10.2 Lease Agreement, dated as of August 12, 1998,
between CarrAmerica Realty Corp., a Maryland
corporation, and the Company.
10.3 Amendment No. 2, dated as of January 1, 1999,
to amended and restated Employment Agreement
dated as of May 1, 1997, between Ira B.
Lampert and the Company.
10.4 Supplemental Executive Retirement Plan and
Agreement for Ira B. Lampert.
10.4(a) Amendment to the Supplemental Executive
Retirement Plan and Agreement for Ira B.
Lampert.
10.5 Deferral Agreement, dated as of May 1, 1997,
between Concord Camera Corp. and Ira B.
Lampert.
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 10, 1999
14