The following items were the
subject of a Form 12b-25 and
are included herein: 1, 6, 7,
8, 14(a)(1), 14(a)(2) and 14(d)
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________________________________________________________________________
FORM 10-K/A
(mark one)
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the fiscal year ended August 31, 1996
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
____________________
Commission file number: 0-21192
____________________
CAMPO ELECTRONICS, APPLIANCES AND COMPUTERS, INC.
(Exact name of registrant as specified in its charter)
Louisiana 72-0721367
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
109 Northpark Blvd., Covington, Louisiana 70433
(Address of principal executive offices) (zip code)
Registrant's telephone number, including area code: (504) 867-5000
____________________
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
None
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Common Stock, $.10 par value
(Title of class)
____________________
Indicate by check mark whether the Registrant(1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No ______
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. _____
____________________
The aggregate market value of the voting stock held by nonaffiliates
(affiliates being considered, for purposes of this calculation only,
directors, executive officers and 5% shareholders) of the Registrant as of
November 29, 1996 was approximately $4,970,653.50.
____________________
The number of shares of the Registrant's Common Stock, $.10 par value per
share outstanding, as of November 29, 1996 was 5,566,906.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's definitive proxy statement to be used in
connection with the 1996 Annual Meeting of Shareholders will be, upon filing
of such proxy statement with the Commission, incorporated by reference into
Part III of this Form 10-K.
PART I
ITEM 1. BUSINESS
Overview
General. The Company is a leading specialty retailer of name brand
consumer electronics, major appliances, computers and home office products
with 31 stores in Louisiana, Mississippi, Northeast Texas, Alabama, Tennessee
and Florida. Campo's merchandising strategy is to emphasize top name brand
products with the highest name recognition among consumers, and to carry a
relatively broad range of product offerings within those brands. The Company
uses high profile, aggressive advertising to communicate its guaranteed low
prices and frequent price promotions, and also executes a number of store-
level operating strategies designed to promote quality service and customer
satisfaction, including guaranteed next-day delivery, home installation and
extended warranty plans for most products sold. Customer awareness and
loyalty are enhanced by the Company's issuance of private label credit cards,
of which there are over 300,000 holders. In recent years, the Company
developed and implemented a Campo Concept store format to meet higher consumer
expectations. Campo Concept stores feature well-lit, open selling areas,
informative signage, an attractive interior and exterior design, hands-on
merchandise displays and an interactive environment for the consumer.
Recent Industry Conditions. During fiscal 1996, Campo experienced steady
declines in comparable store sales, continuing a trend that began in the third
quarter of fiscal 1995. This negative sales trend was consistent with the
weak overall performance of all sectors of the retail industry, as consumers
burdened with high consumer debt levels generally reduced their overall levels
of non-essential consumer spending. This downturn has had a particularly
severe impact on the consumer electronics retail segment due to a reduced
demand for the core electronics products sold by the Company, which was
compounded by a slow down in the bringing to market of new consumer
electronics products.
As a result of the weak market for consumer electronics and appliances, the
Company participates in a highly competitive and promotional climate, with
retailers focusing primarily on protecting market share. This highly
competitive environment has exerted considerable pressure on the Company's
gross profit margins, which have been adversely affected not only by constant,
intense price competition, but also by a decrease in vendor rebates and other
programs that have contributed to the Company's profitability in prior years.
In addition, those product lines for which there has been an increasing
demand, such as computers and home office equipment, are generally lower
margin items, thus further increasing the pressure on the Company's gross
profit margins. Finally, industry research indicates that today's consumers
are spending less time shopping in stores and instead are learning about
product pricing and features and alternatives prior to entering a store. This
usually means that a consumer purchases a product from the first store he or
she visits. In the present competitive environment, it is increasingly
important that a retailer have "top of mind" awareness among consumers, so
that it is the first place shopped, and then to have the skills, training and
operational efficiencies in place to enable the sales associates to close
sales as quickly as possible.
Although Campo, like many consumer electronics retailers, has experienced
declining sales in all of its markets, it has been successful in capturing
market share in newly entered markets while maintaining and improving market
share in existing markets. Based on independent studies, Campo is in the
top three in market share among consumer electronics and appliance retailers
in each of its 21 markets. Independent research also indicates that Campo is
viewed as the "price leader" in the majority of its markets, and that Campo
has achieved "top of mind" awareness among its consumers in each of its
markets. The Company believes that its high profile Campo Concept stores,
which are strategically located in favorable markets, and its high saturation
advertising strategy, have succeeded in maintaining the prominent profile of
the Campo name, thus enabling the Company to compete in this challenging
environment and positioning the Company, from a marketing perpective, to
capitalize on any favorable change in industry conditions.
Campo was vulnerable to the weakened performance of the consumer
electronics industry because the current downturn began at a time when Campo
had embarked on an expansion program. Campo opened 14 new stores in fiscal
1995, taking the Company from a small, family-run business with 12 stores in
two markets at the end of fiscal 1992 to a regional chain with 31 stores in 21
markets by the end of fiscal 1995. During its expansion, the effects of the
industry downturn were obscured by sales boosts attributable to new store
grand openings as well as to a severe flood in the Company's New Orleans
market in May 1995 (which stimulated a short-term inflated demand for the
Company's products); however, as the negative industry conditions continued,
the Company slowed the pace of its new store openings and the severity of the
industry downturn became more fully apparent. In addition, the Company's
rapid expansion outpaced certain of the Company's management and operational
systems which, in turn, significantly impaired the Company's ability to
maintain adequate training and supervision of its expanding sales force and
managers, to track and effectively manage its inventory and to respond quickly
to changing industry conditions. The Company's ability to respond effectively
to its management and infrastructure problems was hampered by its declining
financial performance. When Campo opened its most recent new Campo Concept
store in August 1995, it announced at that time that it would curtail further
expansion and focus on improving its infrastructure until such time as the
industry conditions improved.
As discussed below, the poor performance of the retail industry and the
Company over an extended period led management during fiscal 1996 to review
the Company's operations and to explore methods to improve operational
efficiency and reduce costs. To that end, the Company, with the assistance of
an independent consultant, implemented several initiatives designed to improve
the Company's operations. Although management is satisfied that these measures
have begun and will continue to have a positive impact on the Company's
performance, retail industry conditions have continued to deteriorate, leading
management to conclude that a comprehensive review of the Company's operations
was appropriate. Management has recently engaged an independent financial
consultant to assist it in evaluating the entirety of the Company's operations
and recommending measures that are most likely to achieve an improvement in
the performance of the Company.
As discussed under the heading "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Liquidity and Capital
Resources," the Company recently secured from its lenders and the providers of
its floor plan financing waivers of its non-compliance with certain financial
covenants contained in its financing instruments. In addition, the Company
was successful in achieving an amendment of the financial covenants to be in
line with the Company's fiscal 1997 budget. However, to secure these waivers
and amendments, the Company was required by the banks to accelerate the
maturity date of its revolving credit and term loan facility to September 1,
1997. As a practical matter, this will require the Company to secure a
replacement line of credit facility and term loan prior to the end of fiscal
1997. The information to be obtained from the Company's comprehensive review
of its operations is expected to help ensure that the Company will be in a
positioned to obtain the timely necessary replacement debt arrangements.
This self-evaluative process is expected to take several months to
complete, and no recommendations have been developed thus far by management
and the consultant. Following development of such recommendations, the
Company's board will determine which measures, if any, are appropriate to
incorporate into an overall business plan for the Company. Although no
decisions have been made, the possibility exists that fundamental changes to
the Company's operations could be implemented following this review.
Campo Initiatives. Until the end of fiscal 1995, Campo's principal focus
was on expanding its business to become a regional retail chain. With its
initial expansion completed at the end of fiscal 1995, Campo has devoted its
energies in fiscal 1996 to reviewing its operations to find ways to reduce its
variable expenses consistent with its declining sales. To that end Campo
analyzed various aspects of its business including information systems,
store operations, distribution, delivery and inventory systems, and human
resources.
The result of these efforts has been the development by Campo of a
"superior customer service" strategy ("SCS") designed to increase sales,
improve profit margins, increase efficiencies and reduce costs. The key
initiatives that have been implemented by Campo are as follows:
Streamline Store Operations. Campo has reorganized its store operations by
reassigning administrative duties to allow sales managers and sales associates
to focus their efforts on product sales and customer service. Other store
processes, such as third party financing transactions, cellular and paging
transactions, product retrieval and returned product tasks are being handled
by qualified customer service and warehouse associates specifically trained
for each of these tasks. The Company believes that this strategy has
significantly reduced the time required to process sales and has enhanced
customer satisfaction. Building on the popularity of its "guaranteed next day
delivery" service, the Company has also added same day and timed delivery
services to better serve its customers.
Focused Merchandising Strategy. Campo regularly analyzes the profitability
of each of its product lines in order to identify opportunities for improved
returns. Home office products continue to evolve into a core part of Campo's
major business categories. Because these products constitute the fastest
growing category in the industry and build store traffic, the Company
continues to devote much of its floor space and selling efforts to this
category. However, the Company is also reviewing its merchandising strategy
to compensate for the impact of this category's inherently low margins on the
Company's overall profitability by focusing on other products and brands that
are strong sellers with high margins. The Company has also restructured
certain of its incentive and training programs to encourage its sales
associates to emphasize certain higher margin items, such as audio equipment,
accessories, and extended warranty contracts. The Company also regularly
evaluates new products and services that could increase the Company's overall
profit margin. For example, the Company plans to begin offering pagers, vacuum
cleaners, home electronics furniture and computer furniture, and internet
connection services in fiscal 1997. Campo has also reorganized its store
displays in order to better allocate its store space to those items that are
top sellers and high margin items. Finally, the Company is evaluating vendors
and products and making purchasing decisions based on profitability by
focusing on brands that are strong sellers and higher margin items and vendors
who offer the most attractive rebates and other programs. The Company is also
working with its vendors to restructure volume rebates and cooperative
advertising programs to be direct reductions of invoice costs, which would
simplify the administrative process and eliminate the expense and time
currently incurred by the Company to collect these amounts from vendors.
Increase and Target Credit Card Holders. Campo has experienced a decrease
in its approval rate of new card holders, due primarily to increased
competition in the consumer credit industry. To attract a greater number of
new credit card holders, Campo has added incentives to the use of its Campo
credit card such as offering free long distance time to new card holders. The
Company is also increasing its use of secondary credit programs. The
Company's credit card program not only results in increased sales for Campo
but also provides it with a data base for a targeted marketing program that is
based on historical purchasing trends. The Company can track the purchasing
histories of its credit card holders and use such information to promote
specific accessories, upgrades or related products. This targeted marketing
strategy is highly effective and cost efficient since it can be included in
the mailing of the customer's account statement.
Reduce costs. Every process at every level is under close review to
identify opportunities for expense reduction and revenue growth. The Company
has streamlined its corporate structure in light of current business
conditions through staff reductions in administrative positions, and has
centralized its non-inventory purchasing functions, thus enabling Campo to
increase savings by volume purchasing. Campo has reduced telecommunication
costs by renegotiating existing service agreements. In order to compensate
for increasing paper costs, the Company has reduced the number of pages and
frequency of its advertising tabloids. Campo has also outsourced functions
that can be handled by a third party more efficiently, such as facilities
management and extended warranty claims administration. The Company has also
consolidated its corporate headquarters into one floor of its Covington,
Louisiana office building, thus reducing rental expense by approximately
$273,000 per year.
Upgrade Information Systems. Campo has evaluated its information needs
and has begun the process of installing an information system that will
accommodate current and future system requirements. This system will move the
Company's information processes to a distributed client/server environment and
move the software applications closer to end users, thereby increasing
productivity, performance and data availability. The system is designed to
provide improved information to, and interface with, the stores, to ensure
that the sales associates have access to the information needed to better and
more efficiently serve Campo's customers. The system is also designed
to streamline processes, from store level to corporate level, and to reduce
the paperwork needed to complete a sales transaction. The system upgrade
also provides better analytical and report-generating tools for both store
level managers and senior management.
Improve Inventory Turns, Efficiencies and Controls. Campo has also begun
to improve efficiencies within its distribution operations through system
enhancements and process re-engineering designed to improve inventory
accuracy, reduce inventory levels and eliminate redundant handling and
transportation. The Company is implementing a new inventory management system
that allocates inventory to stores based on the highest probability of sale of
a particular product or brand as evidenced by historic sales results. Under
this new system, which is expected to result in increased inventory turns, all
inventory replenishment decisions will be made by the Company's merchandising
department. The Company's information system enhancements will also result in
more efficient and more accurate inventory management by introducing such
technologies as bar coding for all products. The Company's distribution
system has been reorganized to more evenly divide responsibility for the
Company's stores among its three distribution centers based on geographic
location. The Company has also increased the number of inventory delivery
stops to multiple stores located in the same geographic areas and increased
the frequency of inventory deliveries to each store. These measures should
result in increased efficiency and reduced levels of inventory at the store
level. The Company is also working with certain of its appliances vendors,
most of whom are national in scope and have sophisticated inventory management
systems, to allow such vendors to distribute inventory directly to the
Company's stores, which should result in additional cost savings to the
Company. The Company has also taken steps to reduce the risk of inventory
loss by introducing targeted cycle counts that focus on those products at each
store that have historically suffered the most loss, and increasing the
education and awareness of its sales associates and managers regarding ways to
reduce losses. The reorganization of the Company's store operations, which
centralizes the responsibility for the store's inventory in a warehouse
supervisor and dedicated warehouse associates is also expected to increase
inventory control and reduce loss.
Improve Training and Development of Sales Associates and Managers. The
Company has designated its flagship Campo Concept store in New Orleans as its
management training center. In addition to extensive training on store
operations and products, managers are also trained in effective hiring and
training techniques to improve the quality, and reduce the turnover rate, of
the Company's sales associates. Training of sales associates has also been
upgraded in an effort to encourage a focus on profit margins, to improve
customer service, reduce returns and lower inventory loss.
Management believes that these initiatives will enhance its ability to
execute its business strategy described below, and that by implementing these
initiatives and continuously striving to upgrade the efficiency of Campo's
retail execution and overall operations the Company will be positioned to take
advantage of any improvement in the consumer electronics and appliance
industry.
Business Strategy
The Company's business strategy is to establish market leadership in each
of its markets and to build and maintain a loyal customer base by offering
guaranteed low prices, superior customer service through a professional sales
force, a pleasing shopping environment and merchandising of top name brand
products. The Company believes this strategy, supported by an aggressive
advertising program and an experienced management team, has helped it achieve
a dominant share of almost all of the markets it serves for the product
categories it offers. The key elements of its business strategy include:
Brand Merchandising. The Company offers a comprehensive selection of top
name brand consumer electronics, major appliances, computers and home office
products, with an emphasis on those name brands with the highest name
recognition among consumers, and carries a wide range of prices and models
within those brands. The Company's brand merchandising strategy is designed
to provide a high quality image in the marketplace and to encourage increased
vendor support.
Customer Service. To promote customer loyalty and to provide a competitive
advantage, the Company seeks to assure that its customers consistently receive
knowledgeable and courteous assistance by maintaining the technical and
interpersonal skills of its sales force through extensive initial and ongoing
sales and product training sessions. The Company also offers guaranteed next-
day, and same day and timed delivery services on major purchases, home
installation, computer training classes, extended warranty plans and a thirty-
day, no questions asked return policy on most products.
Aggressive Advertising. The Company engages in extensive advertising to
promote its competitive prices on top name brands and customer service. The
Company's in-house advertising department produces all of the Company's
newspaper advertisements and television and radio commercials, which provides
the Company with cost savings and gives the Company greater control and
flexibility over its creative product.
Competitive Pricing. The Company's policy is to offer superior value to
its customers by maintaining competitive prices in each of its markets. To
support this policy, the Company actively monitors prices at competing stores
and maintains a low price program that guarantees that if an item can be
purchased at a lower price from another retailer, or even from the Company, 30
days after the customer has purchased the item, the Company will refund the
difference to the customer.
Experienced Management Team. The Company has assembled experienced senior
management and regional and in-store management teams. The Company's six top
executives have an average of approximately 14 years of experience each in the
consumer electronics and appliance retail industry. The Company's Veterans
Boulevard Campo Concept store serves as its management training center for the
continued training and development of its managers.
Operational Controls. The Company's management information system supports
its point-of-sale computer inventory system; provides its management team
with real time information on product availability, shipping and store data
and price changes; enables the Company to manage more efficiently pricing and
inventory decisions and accommodates the Company's delivery programs. It also
provides sales associates with on-line information including information
regarding specific product features and accessories, Company policies on
returns, delivery or warranty coverage, and delivery and credit information.
Private Label Credit Card. To encourage repeat business and a longer term
relationship with its customers, the Company offers a private label credit
card through an independent credit card bank that bears all credit risk
without recourse to the Company. During fiscal 1996, approximately 30% of the
Company's sales resulted from purchases with these cards. As of August 31,
1996, there were more than 300,000 card holders. Average purchases with these
cards are significantly higher than transactions using other payment methods.
Marketing
Campo Concept Stores. In 1991, management designed a prototype Campo
Concept store that has been the model for all new stores. The Campo Concept
store format has allowed the Company to offer consumers a broad selection of
consumer electronics, appliances and home office products. These stores
feature a contemporary design aimed at educating the customer and enhancing
the shopping experience, and contain hands-on displays that enable the
customer to explore the features of the products sold. The store design and
layout is bright and open and is intended to demonstrate the Company's broad
selection of merchandise and to expose the consumer to each of the store's
product categories immediately upon entering the store. Computer and home
office products, which have been the Company's fastest growing product
category since their introduction in fiscal 1991, are located near the front
of each store and major appliances, television/video equipment and home audio
equipment are positioned around the perimeter of the stores. To capitalize on
the growing convergence of audio and video technology, Campo showcases
televisions and VCRs with audio products in home theater settings throughout
the stores. The stores display a wide assortment of personal electronics
products in the center to encourage impulse shopping.
Existing Campo Concept stores generally contain approximately 18,000 to
30,000 square feet, including approximately 11,000 to 20,000 square feet of
selling space. The Company locates its stores in high visibility, high
traffic commercial areas including strip shopping centers and free-standing
formats with large readily identifiable signage, easy access from major roads
and adequate customer parking. The stores are open seven days per week,
including most holidays. The Company's store hours are intended to make its
stores more accessible to customers than certain other stores selling similar
goods, particularly for those customers who are unable to shop during ordinary
business hours.
The Company's general policy is to lease its stores in order to limit its
investment in fixed assets and increase the availability of capital for other
purposes. The Company's investment in leasehold improvements, fixtures and
equipment generally ranges from $475,000 to $1,000,000 per store. The Company
has been successful in negotiating lessor contributions for tenant
improvements, rent abatements and other concessions to reduce these costs.
Advertising. The Company promotes its prices, selection and service
through aggressive mass media advertising campaigns designed to create an
awareness of the Company's comprehensive selection of quality name brand
merchandise, its competitive pricing policy and its strong customer service
orientation. The Company's strategy is to maintain a balanced advertising
program utilizing local newspaper advertising and radio and television
commercials.
In each of its markets, the Company generally runs four-color multi-page
newspaper inserts weekly. Television and radio advertising is run on a
regular basis in all markets to reinforce messages such as the Company's
guaranteed next-day delivery and name brand selection. The Company also runs
highly concentrated television and radio advertising to support specific sales
events.
The Company's advertising typically stresses promotional pricing, a broad
assortment of top name brand merchandise and the services provided by its
knowledgeable personnel. Content, production and media placement (as well as
layout and artwork in the case of newspaper advertising) are handled by the
Company's in-house advertising department. The Company's approach is to be
flexible in decisions regarding advertising and to make changes to advertising
copy on short notice where necessary in order to take advantage of new
products or unexpected market developments. The Company's use of an in-house
department, instead of an independent advertising agency, has resulted in cost
savings to the Company and has given the Company the flexibility it requires
as well as greater control over the creative product. The Company has
computerized publishing and media-buying systems that allow it to produce
large numbers of advertisements quickly and professionally without the use of
a large advertising staff.
Pricing. The Company's policy is to offer superior value to its customers
by maintaining competitive prices in each of its markets. To support this
policy, the Company actively monitors prices at competing stores and maintains
a low price program that guarantees that if a customer can buy merchandise
purchased from a competitor at a lower price, including the Company's own sale
price, within 30 days of purchase, the Company will refund the difference to
the customer. All initial pricing decisions are made centrally by the
Company's merchandising department. At the store level, store managers retain
flexibility to match competitor's prices in order to comply with the Company's
guaranteed low price program.
Private Label Credit Card Program. The Company accepts most major credit
cards and has its own private label credit card with the "Campo" name which
allows qualifying customers to pay for purchases in installments through an
arrangement between the Company and an independent credit card bank. Under
the agreement, customers' credit card applications are filed and evaluated
electronically from the Company's stores. Typically, this procedure enables
qualifying customers to receive credit card authorizations within a few
minutes. Independent market research indicates that a well-established base
of credit card consumers provides a competitive advantage to retailers. The
Company believes it has experienced longer-term relationships, more repeat
business and higher average purchases through the use of its private label
credit card, with approximately 30% of its fiscal 1996 sales resulting from
purchases with this card. There are more than 300,000 holders of the
Company's private label credit card. The Company has experienced a decline in
its approval rate of new card holders, primarily due to increased competition
in the consumer credit industry. To attract new credit card holders, the
Company has added incentives to the use of its credit card such as offering
free long distance time to new holders of its cards. This benefits the
Company not only by increasing its base of credit card customers but also
because the Company receives fees from the long distance provider for this
service.
Under the Company's private label credit card agreement, the independent
credit card bank has agreed to provide a $125 million revolving line of credit
for the purchase of merchandise and services from the Company's stores by
approved private label credit card holders and to bear substantially all
credit risk without recourse to the Company under the program. The Company
also receives fees from the credit card bank, which are used in part to market
the credit card program and to fund the cost of special promotions (such as 90
days interest free for purchases made with the card) that complement the
Company's other advertising and marketing activities. Payments received under
the agreement are recorded as reductions in selling, general and
administrative expenses. If the growth rate of the credit card portfolio
continues to decline, the Company would not expect future payments received
from the bank under the agreement to continue at current levels.
The Company also provides credit to its customers for individual
transactions through independent finance companies. Similar to the private
label credit card program, the independent finance company bears substantially
all credit risk without recourse to the Company. The Company is increasing
its use of these secondary credit programs to offset the decline in its Campo
credit card portfolio.
Management believes that the Company's private label credit card and
related programs will provide for adequate availability of consumer credit for
fiscal 1997 and that it has the ability to obtain additional consumer credit
facilities in the future under these existing or other similar programs on
substantially similar terms. There can be no assurance that future changes in
the availability of consumer credit will not have an adverse impact upon the
Company's sales and results of operations.
Merchandising
Products. The Company offers a comprehensive selection of top name brand
electronics, major appliances and computer and home office products, with an
emphasis on those name brands with the highest awareness among consumers, and
carries a wide range of prices and models within those brands. The Company's
merchandising strategy is designed to provide a higher quality image in the
marketplace and to encourage increased vendor support. The Company currently
offers more than 3,000 products in its major categories:
<TABLE>
<CAPTION>
Category Products Principal Brand Names
-------- -------- ---------------------
<S> <C> <C>
Television/Video Televisions GE, JVC, Magnavox, Mitsubishi, Panasonic,
VCRs RCA, Samsung, Sony, Zenith
Camcorders
Digital Satellites
Major Appliances Refrigerators Admiral, Friedrich, GE, Hotpoint, Jenn Air,
Dishwashers Kelvinator, KitchenAid, Maytag, Panasonic,
Washer/Dryers Sharp, Tappan, Whirlpool, White-Westinghouse
Ranges
Cooktops
Range Hoods
Microwaves
Air Conditioners
Home Audio Stereo Components Bose, Cerwin Vega, Infinity, JBL, JVC,
Speakers Kenwood, Magnavox, Panasonic, Pioneer,
Stereo Systems Sharp, Sony, Yamaha, Zenith
Computers/Home Office Computers Brother, Canon, Compaq, Epson, IBM,
Printers Packard Bell, Panasonic, Sony
Fax Machines
Electronics/Accessories Personal Audio AT&T, GE, Infinity, JBL, JVC, Kenwood,
Radar Detecters Magnavox, Motorola, Panasonic, Pioneer,
Portable Radios RCA, Sharp, Sony, Southwestern Bell
Car Audio
Car Alarms
Telephones
Cellular Phones
Pagers
</TABLE>
Consumer electronics, including television/video and home audio equipment,
are currently the Company's leading product categories. Campo stores display a
wide assortment of name brand merchandise in this category, and for fiscal
1996, the Company's three leading selling name brands were Mitsubishi, RCA and
Sony. By advertising both inexpensive promotional goods and sale prices on
the leading television/video brands in the industry, Campo believes it is able
to attract a wide range of consumers. Campo's sales counselors are trained to
demonstrate the best values and latest features in each customer's brand
preference. Campo's audio marketing strategy focuses on mid- to high-end
products from leading audio manufacturers in the industry. A wide selection
of products is displayed in both open display areas and smaller acoustically
controlled sound rooms. To capitalize on the growing convergence of audio and
video technology, Campo showcases televisions and VCR's with audio products in
multiple home theater settings throughout the store. Campo also offers custom
system design and installation for high-end surround-sound and multi-room
speaker systems.
The Company believes that one of its competitive strengths is its focus on
major appliances. The Company devotes a significant portion of its store
floor space to this category and offers a large selection of high-end, built-
in appliances. The Company believes that its ability to successfully
merchandise major appliances helps to differentiate it from its competition,
strengthens its image of high quality and wide selection, provides it with a
stable base of business and promotes customer loyalty and repeat business.
Campo Concept stores display a large assortment of the leading brands in the
industry, and for fiscal 1996, the Company's three leading selling name brands
were GE, Maytag and Whirlpool. Campo Concept stores showcase the latest
built-in appliances in a custom kitchen display complete with connections for
in-store cooking demonstrations. Campo's efficient inventory management
system allows the Company to offer its next-day delivery guarantee and its
same day and timed delivery services to make appliance replacement as
convenient as possible for the customer.
Computers and home office products have been the Company's fastest growing
product category since their introduction in fiscal 1991. The Company offers
an assortment of computers, printers and telecommunication machines from
industry leaders. For fiscal 1996, the Company's three leading selling name
brands were Canon, Compaq and Packard Bell. The computers and home office
products are located at the front of each Campo Concept store in a display
that is designed to encourage hands-on interaction with the latest technology
in a convenient and fun learning environment. The Company offers pre-packaged
hardware with pre-loaded software that is ready to use. Computer training
classes are offered in select markets to help first time buyers and students.
The Company's promotional pricing on portable audio products such as
personal electronics and hand held televisions is designed to build store
traffic. Campo Concept stores display a wide assortment of personal
electronics in the store's center to encourage impulse shopping. The
Company's hands-on displays also help customers try out the models, compare
features and make an informed purchasing decision. Campo Concept stores also
offer sales and installation of car audio, alarms, radar detectors and
cellular phones, with on-site demonstration rooms and auto installation bays.
For fiscal 1996, the Company's three leading selling name brands for
electronics/accessories were Mitsubishi, RCA and Sony.
The following table indicates the percentage of gross sales in each product
category for each of the Company's last three fiscal years. The percentage of
gross sales contributed by each product category is affected by season, store
type, promotional activities, consumer trends and the development of new
products. Because these percentages change continually, historical
percentages may not be indicative of future results.
Percentage of Gross Sales
Fiscal Years Ended August 31,
-----------------------------
1996 1995 1994
---- ---- ----
Product category:
Television/video 32.9% 32.8% 32.1%
Major appliances 22.5 23.1 24.5
Computers/home office 18.6 17.6 13.4
Home audio 8.4 8.4 10.4
Extended warranty plans 5.5 5.9 6.0
Portable/personal audio 4.7 5.4 6.0
Mobile electronics 4.0 3.7 3.9
Accessories and other 3.4 3.1 3.7
----- ----- -----
100.0% 100.0% 100.0%
===== ===== =====
Purchasing. The Company purchases its merchandise directly from
manufacturers. The Company has a staff of five buyers under the direction of
the Vice President of Merchandising each of whom has responsibility for
specific product categories. The buyers are assisted by the Company's
management information system which provides them with current inventory price
and volume information, allowing them to respond quickly to market demands.
The Company has been able to negotiate favorable price and payment terms
on very large volume purchases, which in part allows the Company to maintain
its low price strategy. The Company has benefited from its membership in
Nationwide Television and Appliance Association, Inc. ("Nationwide"), a
national buying group that currently consists of approximately 300 retailers
of home appliance and consumer electronic products located throughout the
country, representing more than $4 billion in retail sales. Although it is a
member of Nationwide, the Company makes its own purchasing decisions and is
not required to purchase any particular products or quantity of products. In
fiscal 1996, a majority of the Company's purchases were effected through
Nationwide-sanctioned programs. Nationwide is also a forum for the exchange
of ideas on new products, product lines and services as well as on management
and administrative techniques and procedures, which has also directly
benefited the Company. Although Nationwide is an important source of
information and industry communication, management believes that the Company's
independent buying power, which has strengthened in recent years through its
regional expansion activities, is not dependent on its membership in this
association.
The Company purchases inventory with financing provided either through
third party finance companies or through open lines of credit from vendors,
the former of which is collateralized by the inventory purchased. During
fiscal 1996, sales of goods purchased from the Company's largest supplier
accounted for approximately 12.3% of merchandise sales. The Company typically
does not maintain long-term purchase contracts with suppliers and operates
principally on a purchase order basis.
The Company's current sales, inventory, purchasing and other key
information is tracked at the Company's corporate headquarters on its
computerized point-of-sale system. This system provides management with
information that facilitates merchandising, pricing, sales management and the
management of warehouse and store inventories, and enables management to
review and analyze the performance of each of the Company's stores and sales
personnel on a daily basis. The Company's central purchasing department
monitors current sales and inventory at the stores each day. The purchasing
department also establishes the level of inventory required at each store and
handles the replenishment of store inventory on a daily or weekly basis. The
Company also conducts periodic cycle counts of selected inventory categories.
Inventory turned over 4.0 times for fiscal 1996.
Distribution. Substantially all inventory purchased by the Company is
shipped directly to its distribution facilities in New Orleans and Shreveport,
Louisiana and Bessemer, Alabama. Each store receives shipments of inventory
from the closest distribution facility at least three times a week and based
on demand, daily, thereby increasing availability to customers by enabling
each store to maintain sufficient inventories of all products and to promptly
replenish inventories of fast moving products. The Company believes its
computerized distribution system allows it to support a broad selection of
merchandise within the stores while minimizing store level inventory
requirements. The Company also believes its distribution system provides for
savings by consolidating receiving and handling functions and by enabling the
Company to purchase in full truck loads from suppliers. The Company is also
working with certain of its appliances vendors, most of whom are national in
scope and have sophisticated inventory management systems, to allow such
vendors to distribute inventory directly to the Company's stores, which should
result in additional cost savings to the Company.
The Company owns two distribution facilities in New Orleans, containing
approximately 50,000 and 100,000 square feet of warehouse space, respectively.
The Company leases its Shreveport distribution center, which contains
approximately 50,000 square feet of warehouse space, and its Alabama
distribution facility, with approximately 110,000 square feet of warehouse
space.
Store Operations
Sales Associates. The Company views itself as being in a service
business and emphasizes to its sales personnel the need to provide personal
attention to each customer. Although most of the merchandise carried by the
Company is displayed in specialized fixtures or self-demonstrating audio and
visual displays, the Company does not operate its stores in a self-service
fashion and encourages its trained personnel to assist customers in selecting
merchandise by demonstrating products and providing information desired by the
customer with respect to price, features and other matters. Highly visible
displays of many products at each Campo store promote sales by enabling sales
personnel to demonstrate for customers the use of these products.
The Company believes that one of its distinguishing characteristics is the
quality of the people serving its customers and has made a serious commitment
to the training and development of its sales counselors to insure that
customers consistently receive knowledgeable and courteous assistance. The
Company has professional sales training personnel who provide extensive
initial and ongoing training for its sales counselors through sales training
meetings, product training sessions and sales training literature. The
Company produces all of its product training and sales training materials and
courses. At the commencement of employment, each sales counselor must study
the appropriate product training manuals and pass a test to certify his or her
knowledge in each product category. In addition, each sales counselor must
complete an intensive two-week training program that utilizes a standardized
video tape and workbook system, which ensures the consistency of the training
of all Campo sales associates. The sale associate's progress is monitored by
the store manager and each sales associate is further assisted by a "mentor,"
who is a more experienced sales associate, during the two-week training
period. The Company encourages its sales counselors to learn about and sell
all of the products carried in its stores but will only allow them to sell
products for which they have been properly trained. The Company provides
continuing education with multi-media computer presentations, at-home study
materials, weekly sales and product training meetings conducted by store
management personnel and a monthly live satelite broadcast to all stores by
the corporate trainers.
Management. The Company has developed its own materials and courses for
management training and development. Campo has a system to identify sales
counselors with management potential, assess the strengths and developmental
needs of each individual and tailor a development plan to expedite his or her
growth within the organization. All new Managers are required to complete a
one month initial training program. The Company also conducts periodic store
management workshops and monthly sales managers meetings to continue the
growth and development of its sales management teams. The Company has
designated its flagship Campo Concept store in New Orleans as its management
training center, which is managed by a Campo District Manager. The training
center also works with store and district managers to develop on-going
training programs for their sales associates and "management succession plans"
for each store and district.
The Company's operations are currently divided into five districts to maximize
management and distribution efficiencies. Each district is managed by a
District Manager. The North Louisiana district consists of six stores in
five markets with its regional office and distribution center located in
Shreveport, Louisiana. The South Louisiana and Central districts are based in
New Orleans and currently consist of seven stores in four markets, and five
stores in three markets, respectively. The Alabama district consists of five
stores in five markets and the Coastal district consists of seven stores in
six markets. In addition, the New Orleans flagship store, which also serves as
the Company's management training facility, is designated as its own Campo
"University" district and is managed by a sixth District Manager. The district
management teams report to the Company's Director of Stores. The Company's six
district managers and the Director of Stores each have an average of 12 years
of retail management experience. The Company believes that bi-monthly visits
by its district management teams are essential to maintain superior customer
service.
The management structure of each store consists of a full-time store manager
and an assistant store manager. Each store manager's compensation consists of
a salary and bonus based on the store's sales volume and profitability.
Certain stores also have an operations manager who is responsible for non-
selling store operations such as the warehouse and customer services
operations. Each operations manager's compensation consists of a salary, a
bonus based on inventory control and payroll expense control, and a commission
on personal sales. Assistant managers earn a salary, bonus and a commission
on personal sales. All of the Company's sales counselors are paid on a
commission basis. Additionally, the Company motivates its sales counselors
with recognition awards and sales contests and by providing opportunities
for advancement within the Company. The store management structure has
recently been reorganized to transfer to the assistant managers the
responsibilities of the operations managers and to add a customer service
supervisor, responsible for financing, cellular telephone and paging paperwork
and related "non-selling" tasks, and a warehouse supervisor, in charge of all
receiving and delivery functions and inventory cycle counts. The Company's
store management structure is designed to maximize each store manager's
presence on the sales floor and thus his or her personal involvement in sales
and customer service.
Customer Services. The Company supports its merchandise sales by
providing a number of important customer services including guaranteed next-
day, and same day and timed delivery, home and car installation, extended
warranty contracts and a thirty-day, no questions asked, return policy on most
products. The Company also offers in select markets free computer training
classes to purchasers of its computer products.
The Company's "Next-Day Express Metro Delivery" service guarantees that
a major purchase will be delivered to the customer by the day after purchase
or the Company will refund the purchase price to the customer. In rare
instances, the Company has been required to refund to customers the purchase
price of an item because of the Company's inability to deliver the item by the
day after purchase. The Company has recently begun offering same day and
timed delivery of appliances. The same day service is available on purchases
made before 3 p.m. and the timed delivery service offers customers a narrower
delivery time window that includes evening delivery hours. The Company
believes its delivery service has contributed to the Company's significant
sales growth in the appliance category, indicating that this service provides
a competitive advantage and is highly desired by customers. Many of the
Company's competitors do not offer even next-day delivery of major appliances.
The delivery service is provided by both in-house delivery services and
independent contractors approved by the Company, which provides a cost-savings
to the Company.
The Company uses factory authorized service centers for all repair
services. At the time of purchase each customer may elect to purchase an
extended warranty contract which provides warranty coverage beyond the
duration of the manufacturer's warranty. Generally these contracts provide
one to five years of extended warranty coverage, which promotes post-sale
customer satisfaction and a longer-term relationship with the Company. The
Company's consumer relations department handles all problems and questions
regarding service and extended warranty contracts. These contracts are
administered for the Company by Federal Warranty Service Corporation
("Federal"), an unaffiliated third party, which performs the repair services
required by the contracts through factory authorized service centers. Federal
is required by its agreement with the Company to maintain insurance to
protect the Company in the event that Federal fails to fulfill its obligations
under the extended warranty contracts. The Company sells the extended warranty
contracts to Federal on a non-recourse basis.
Controls. The Company attains store operating efficiencies through
comprehensive merchandise, personnel and information controls. The Company
closely monitors the performance of its sales personnel as well as the sales
results and operations at each of its stores through its management
information system. Changes in store operating procedures and pricing
policies are established by management at the Company's headquarters and are
disseminated to each store through daily facsimile transmissions, weekly
conference calls and monthly manager meetings.
Information Systems
The Company utilizes computer technology to support its point-of-sale,
retail management, and financial software applications. These software
applications are maintained primarily by the Company's in-house information
systems department. The Company is committed to staying abreast of rapidly
changing telecommunication and systems technologies, and has provided on-going
training for its information systems personnel to ensure that all system
recommendations are based on sound technical knowledge. The hardware
platform, an IBM AS/400 model F90, has been upgraded as needed to accommodate
the Company's recent aggressive growth. All stores and distribution centers
are equipped with computer terminals and printers which communicate
interactively to the host AS/400 system at the Company's corporate
headquarters. The hardware, telecommunications network, and interactive
software allow the Company to have "real-time" sales and inventory
information.
The activity of all stores and distribution centers may be viewed by
management via on-line inquiry at any time. This allows for decisions to be
based on current, real-time information and provides immediate feedback on
sales activity associated with special promotions and events. Trend, gross
margin, and sales analysis reports are produced each morning from the previous
day's business.
The Company's need for real-time inventory and distribution information
is driven by a variety of reasons, the most significant being efficient
management of inventory. The auto-replenishment feature of the system is
utilized to replenish store stock rapidly from the Company's distribution
centers. Additionally, this real-time inventory information enables the
Company to meet its guaranteed next-day delivery policy and to facilitate its
new same day and timed delivery services.
The Company has recently purchased a new Hewlett-Packard hardware system
utilizing Oracle software that will integrate all store processes into one
system, allow for user-driven reporting based on individual needs for
information, and upgrade the terminals at each store and warehouse to a
"smart" terminal, including e-mail communication and internet access. This
systems upgrade, which is expected to be completed during the third quarter of
fiscal 1997, will increase the amount and quality of information available at
the store level, including on-line sales assistance, with a direct link to the
Company's third party warranty and financing providers, on-line help with
regard to Company policies and procedures, delivery and inventory information
and reporting functions capable of allowing a store manager to track
performance goals such as sales goal performances, profit margins and
commission levels. The system will also improve the Company's inventory
management and financial reporting functions.
Competition
The Company's business is highly competitive in all product categories.
In general, the Company's competitors include other specialty stores,
independent consumer electronics and appliance stores, department stores,
warehouse clubs, mass merchandisers, discount stores and catalogue showrooms,
many of which are national in scope and have significantly greater resources
than the Company. The Company believes that it competes in its current
markets most directly with Sears, Walmart and Sams (in all markets), Wards
(all markets except New Orleans) and Circuit City in approximately 50% of its
markets. The Company competes with these companies by aggressively
advertising and emphasizing its product selection, guaranteed low prices and
superior customer service.
The Company believes it is positioned in its current market areas to
compete effectively with national and other regional companies. However, there
can be no assurance that the Company will not face additional competition in
its current or future markets from new or existing competitors.
Employees
As of August 31, 1996, the Company employed approximately 1,159 persons,
953 of whom were full-time employees and 206 of whom were part-time. The
Company is not a party to any collective bargaining agreement and is not aware
of any efforts to unionize its employees. The Company considers its relations
with its employees to be good.
Trade Names and Service Marks
The Company holds various federal trade names and service mark
registrations including rights to the name "Campo." The Company believes that
this trade name has acquired substantial goodwill and reputation and broad
consumer recognition as a trade name of the Company within its market areas
and that its continued use is important to the development of its business.
The Company is not aware of any adverse claims or infringements concerning any
of its trade names or service marks.
PART II
ITEM 6. SELECTED FINANCIAL AND OPERATING DATA
(In thousands, except per share amounts and operating data)
The following statement of operations and balance sheet data for fiscal
1992 through fiscal 1996 are derived from the Company's audited financial
statements, which were audited by Coopers & Lybrand L.L.P., independent
certified public accountants. The data set forth below should be read in
conjunction with the financial statements of the Company and the notes thereto
included under Item 8 of this Form 10-K and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" included under
Item 7 of this Form 10-K.
<TABLE>
<CAPTION>
Years Ended August 31,
----------------------
Statement of Operations Data:<F1> 1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net sales $294,967 $294,620 $194,621 $101,954 $74,778
Cost of sales 232,183 232,843 147,813 76,821 55,648
Gross profit 62,784 61,777 46,808 25,133 19,130
Selling, general and administrative expenses 62,189 61,972 40,367 21,555 16,886
Professional services<F2> 879 ----- ----- ----- -----
Severance costs<F2> 340 ----- ----- ----- -----
Merger costs ----- 303 ----- ----- -----
________ ________ ________ ________ _______
Operating income (loss) (624) (498) 6,441 3,578 2,244
Other income (expense):
Interest expense (2,100) (1,399) (299) (556) (605)
Interest income 137 95 125 179 97
Other, net 445 503 409 255 75
________ ________ ________ ________ _______
(1,518) (801) 235 (122) (433)
________ ________ ________ ________ _______
Income (loss)before income tax and
cumulative effect of change in
accounting principle (2,142) (1,299) 6,676 3,456 1,811
Income tax expense (benefit)<F3> (754) (256) 2,519 815 -----
________ ________ ________ ________ _______
Income (loss) before cumulative
effect of change in accounting
principle (1,388) (1,043) 4,157 2,641 1,811
Cumulative effect of change in
accounting principle ----- (1,892) ----- ----- -----
________ ________ ________ ________ _______
Net income (loss) $ (1,388) $ (2,935) $ 4,157 $ 2,641 $ 1,811
======== ======== ======== ======== =======
Pro Forma Statement of Operations Data:
Net income (loss) as reported $ (1,388) $ (2,935) $ 4,157 $ 2,641 $ 1,811
Charge in lieu of federal and
state income tax<F4> ----- ----- ----- 407 688
Retroactive application of the
straight-line method ----- ----- 422 357 351
Cumulative effect of change in
accounting principle ----- (1,892) ----- ----- -----
________ ________ ________ ________ _______
Reported pro forma net income<F5> $ (1,388) $ (1,043) $ 3,735 $ 1,877 $ 772
Per Share Data: ======== ======== ======== ======== =======
Net income (loss) before cumulative
effect of change in accounting
principle $ (0.25) $ (0.19) $ 0.91 $ 0.80 -----
Cumulative effect of change in
accounting principle ----- (0.34) ----- ----- -----
________ ________ ________ ________ _______
Net income (loss) $ (0.25) $ (0.53) $ 0.91 $ 0.80 -----
======== ======== ======== ======== =======
Pro forma net income (loss) $ ----- $ (0.19) $ 0.81 $ 0.57 $ 0.31
======== ======== ======== ======== =======
Weighted average number of common
shares outstanding 5,566,906 5,565,942 4,590,391 3,306,069 2,500,001
Selected Operating Data: ========= ========= ========= ========= =========
Store data <F6>
Stores open at beginning of period 31 21 22 12 14
Stores opened or acquired 0 14 6 13 3
Stores closed or replaced 0 (4) (7) (3) (5)
________ _________ _________ ________ ________
Stores open at end of period 31 31 21 22 12
Average sales for stores open for
entire year period<F7> $ 9,334 $ 10,419 $ 9,001 $ 7,892 $ 5,849
Percentage change in comparable
sales<F7> (13.6%) 5.1% 28.5% 18.4% 18.2%
Approximate total square feet of
store selling space at period end 491,000 491,000 252,474 245,184 126,614
Sales per weighted average selling
square foot<F7> $ 590 $ 740 $ 739 $ 658 $ 574
Years Ended August 31,
1996 1995 1994 1993 1992
Balance Sheet Data:
Working capital $ 15,824 $ 18,535 $ 12,594 $ 8,478 $ 1,880
Total assets $119,034 $ 135,710 $ 97,122 $ 71,396 $ 25,344
Long-term debt, less current portion $ 18,191 $ 20,257 $ 982 $ 3,792 $ 5,564
Shareholders' equity (deficit) $ 34,129 $ 35,505 $ 38,437 $ 17,775 $ (419)
Dividends paid<F8> ----- ----- ----- $ 1,247 $ 308
__________
<FN>
<F1> Prior to February 1993, the Company operated as a corporation taxable as
an S Corporation under the Internal Revenue Code. The Company terminated its
S Corporation status immediately prior to the effective date of its February 1993
initial public offering. Net income per common share prior to the S Corporation
rescission is not included because management believes such information is not
relevant in light of the Company's termination of its S Corporation status.
<F2> During fiscal 1996, the Company hired a consulting firm to evaluate and
refine its storeline operations. The costs associated with these consulting
services of $879,000 were expensed during fiscal 1996. Also, in July 1996,
two of the Company's executives resigned from the Company to pursue other
opportunities. The severance packages associated with these resignations of
$340,000 were expensed in July 1996. The impacts of these costs (net of tax) on
net income per share of the Company for the fiscal year ended August 31, 1996
were decreases of $0.10 and $0.04 per share, respectively.
<F3> Because the Company previously operated as an S Corporation, net income
(loss) prior to 1993 does not reflect a provision (benefit) for federal income
taxes.
<F4> Reflects the income taxes, at the applicable statutory rates, for which
provision would have been made if the Company had been a C Corporation for all
periods presented.
<F5> Pro forma net income per common share for fiscal 1993 after giving effect
to the acquisition of Shreveport Refrigeration, Inc. and retirement of the
promissory note due the former majority shareholder was $2,816,863 and $0.79,
respectively.
<F6> The Company closed 14 stores and opened 24 new Campo Concept stores during
fiscal 1993, 1994 and 1995. Also reflects the purchase of nine locations of
Shreveport Refrigeration, Inc. in July 1993 and the September 1993 closing of
one of these locations. Includes the March 1993 opening of a temporary site in
Baton Rouge, Louisiana while awaiting the completion of a Campo Concept store
opened in October 1993.
<F7> Includes comparisons of new Campo Concept stores to previously existing
Company stores replaced by such Campo Concept stores. The Company's comparable
store sales calculations include the effects of certain non-retail sales to
commercial buyers and beginning in 1993, include net sales of extended warranty
plans. If non-retail sales were excluded, the percentage change in comparable
store sales for fiscal 1994 and 1993 would have been 22.1% and 16.8%,
respectively. Management believes that prior to fiscal 1993, non-retail sales
did not have a significant impact on comparable store sales increases. Sales
from the Company's three Sound Trek locations that were closed in September 1993
and January 1994 have been excluded from the computation of comparable store
sales beginning in the quarter in which they were closed. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Comparable Store Sales" for a more complete discussion of comparable store sales
and its method of calculation. Beginning in fiscal 1995, comparable store sales
were calculated using same store format and retail sales only and begin
comparisons in the store's fifteenth month of operation.
<F8> Reflects payments made to shareholders for payment of income taxes prior
to recission of Subchapter S election in conjunction with the Company's initial
public offering.
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following should be read in conjunction with the "Selected Financial
and Operating Data" and the notes thereto and the financial statements and
notes thereto of the Company appearing elsewhere herein.
Fiscal 1996 Overview
Although net sales during fiscal 1996 showed a slight increase over
fiscal 1995 levels, the Company experienced comparable store sales declines of
13.6% during fiscal 1996 as compared to fiscal 1995, continuing a trend that
began in the third quarter of fiscal 1995. The decline in comparable store
sales reflects the combined impact of the general weakness in the retail
consumer electronics industry, increased competition in many of the Company's
principal markets, a slowdown in the development of new products in consumer
electronic categories and reduced spending levels of consumers for non-
essential goods due to record high debt levels. The small increase in net
sales realized in 1996 as compared to 1995 was primarily due to the
annualization of sales from the 14 stores opened during fiscal 1995 and the
accelerated recognition of extended warranty contracts revenue discussed
below.
The relatively soft level of consumer demand within the consumer
electronics and appliance industry has created a highly competitive and
promotional climate, which, in turn, has inhibited the Company's ability to
improve its gross profit margins. Although gross profit for fiscal 1996
improved slightly as a percentage of net sales, this improvement was primarily
due to the impact of a full year's effect of the accelerated recognition of
extended warranty contracts revenues due to the Company's sale of all
extended warranty contracts sold by it to customers after July 31, 1995 to an
unaffiliated third party. In addition to the soft level of consumer demand,
another factor impeding the Company's ability to improve its margins in
fiscal 1996 was a change in vendor incentives, with vendors generally offering
lower levels of rebates, although much of the decline was offset by
lower inventory prices as vendors offered alternative incentives enabling the
Company to acquire inventory at a lower cost.
Campo did not open any new stores in fiscal 1996, as it sought to absorb
the impact of the recent expansion and strengthen its infrastructure in this
difficult retail environment, and there are no store openings planned for
fiscal 1997. As discussed in "Business," in fiscal 1996 the Company did
initiate several measures designed to restore profitability, including
measures to improve customer service, streamline store sales processes, reduce
administrative overhead and other costs and improve efficiencies. Because
these measures were implemented during the fourth quarter of fiscal 1996, they
did not have a material impact on that fiscal year's results; however,
management is satisfied that these measures will have a positive impact on the
Company's future performance. During fiscal 1997, the Company expects to
implement additional measures to upgrade and improve its operational systems,
maximize operational efficiencies at the existing Campo Concept stores,
strengthen existing local market shares through aggressive marketing, and
improve overall retail execution. At August 31, 1996, the Company operated 31
stores in 21 markets in Louisiana, Mississippi, Alabama, Tennessee, Florida
and Northeast Texas. See "Liquidity."
In addition to focusing on opportunities to improve gross margin, Campo
has implemented a number of changes to reduce its variable expense structure
in line with declining sales revenues. The Company has examined closely its
operations at all levels to identify opportunities for expense reduction or
revenue growth. The Company has streamlined its corporate structure in light
of current business conditions through staff reductions in administrative
positions, and has centralized its non-inventory purchasing functions, thus
enabling the Company to increase savings by volume purchases. Campo has
reduced telecommunication costs by renegotiating existing service agreements.
In order to compensate for increasing paper costs, the Company has reduced the
number of pages and frequency of its advertising tabloids. Campo has
outsourced functions that can be handled by a third party more efficiently,
such as facilities management and extended warranty claims administration.
Campo is also evaluating opportunities to improve efficiencies within its
distribution operations through system enhancements and process reengineering
which are expected to improve inventory accuracy, enable the Company to reduce
inventory levels and eliminate redundant handling and transportation.
Fiscal 1995 Accounting Change
Following completion of a comprehensive review of its accounting for
recognition of revenue and related expense on its extended warranty contracts,
and after discussion with its independent accountants, during the third
quarter of fiscal 1995, the Company changed its method of recognizing revenue
and related direct expense with respect to its extended warranty contracts
from a historical expenses incurred method to a straight-line method.
The method of application of the Company's prior accounting policy
accelerated recognition of income which was not material and the effect of
which has been included in the effect of the change in accounting. The one-
time charge of $1.9 million (after reduction for income taxes), recorded as
the cumulative effect of the change in accounting principle, reflects the
difference between the total amount of revenues recognized (less all direct
expenses recognized and such excess of other expenses) in prior fiscal years
under the prior method as it was actually applied and the amount of revenues
less direct expenses that would have been recognized in prior fiscal years
using the straight-line method. Previously reported quarterly 1995 financial
statements have been restated to reduce certain reported warranty revenues and
expenses to reflect the September 1, 1994 effectiveness of the accounting
change. For further information, see Notes 1 and 2 to the financial
statements.
The cumulative effect of the accounting change was to defer previously
recognized net revenues on existing contracts and recognize the remaining
deferred balance over the remaining terms of the respective contracts on a
straight-line basis. The change to the straight-line method will generally
result in lower revenue recognition during the early years of a contract than
did the prior accelerated method. For further discussions on future impact of
the accounting change, see "Sale of Extended Warranty Service Contracts".
Sale of Extended Warranty Service Contracts
Effective August 1, 1995, the Company agreed to sell to an unaffiliated
third party all extended warranty service contracts sold by the Company
subsequent to July 31, 1995. The Company records the sale of these contracts,
net of any related sales commissions and the fees paid to the third party, as
a component of net sales. Although the Company sells these contracts at a
discount, the amount of the discount approximates the cost the Company would
incur to service these contracts, while transferring full obligation for
future services to a third party .
Results of Operations
The following table sets forth, for the periods indicated, the relative
percentages that certain income and expense items bear to net sales:
Fiscal years ended August 31,
-----------------------------
1996 1995 1994
---- ---- ----
Net sales 100.0% 100.0% 100.0%
Cost of sales 78.7 79.0 76.0
Gross profit 21.3 21.0 24.0
Selling, general and administrative expenses 21.1 21.1 20.7
Professional services 0.3 ---- ----
Severance costs 0.1 ---- ----
Merger costs ---- 0.1 ----
_____ _____ ____
Operating income (loss) (0.2) (0.2) 3.3
Other income (expense) (0.5) (0.3) 0.1
_____ _____ ____
Income (loss) before income taxes and
cumulative effect of change in
accounting principle (0.7) (0.5) 3.4
Income tax expense (benefit) (0.2) (0.1) 1.3
_____ _____ ____
Income (loss) before cumulative effect
of change in accounting principle (0.5) (0.4) 2.1
Cumulative effect of change in
accounting principle ---- (0.6) ----
_____ _____ ____
Net income (loss) (0.5) (1.0) 2.1
Pro forma adjustments:
Retroactive application of the
straight-line method ---- ---- 0.2
Cumulative effect of change in
_____ _____ ____
Reported pro forma net income (loss) (0.5)% (0.4)% 1.9%
===== ====== ====
Comparison of Fiscal Years Ended August 31, 1996, 1995, and 1994
Net Sales
Net sales were $295.0 million, $294.6 million and $194.6 million for the
fiscal years ended August 31, 1996, 1995 and 1994, respectively, representing
increases of 0.1% and 51.4% in fiscal 1996 and 1995, respectively. In a
period of declining comparable store sales, net sales increased slightly in
fiscal 1996 primarily due to the annualization of sales from the 14 stores
opened during fiscal 1995 and the impact of a full year's effect of the
accelerated recognition of extended warranty contracts revenue discussed below.
Net sales increased in 1995 primarily because of the addition of 14 new Campo
Concept stores, nine of which represented expansions into new markets. Other
factors contributing to the increase in 1995 included the growth of the
Company's private label credit card and guaranteed next-day delivery programs
and increased sales of computers and home-office products.
Comparable store sales decreased by 13.6% in fiscal 1996, compared to
increases of 5.1% and 28.5% in fiscal 1995 and 1994, respectively. The
decrease in comparable store sales and reduction in increases from 1994 to
1995 were primarily due to increased competition in those existing markets
containing the Company's comparable retail stores and poor economic conditions
affecting the retail industry in general. Another factor contributing to the
decline in comparable store sales is the comparison of sales of new stores
opened just over a year to strong sales activity in the period following the
grand opening of such stores, which benefited from sales momentum created by
grand opening promotions. Beginning in fiscal 1995, the Company changed its
method of calculating its comparable store sales to use same store format and
retail sales only and to begin comparisons in the store's fifteenth month of
operations. If the new calculation had been used in fiscal 1994, comparable
store sales would have increased by 22.4% over comparable store sales in
fiscal 1993.
Extended warranty revenue recognized under the straight-line method
(applicable to those extended warranty contracts sold prior to August 1, 1995)
was $8.4 million, $10.1 million and $9.3 million for the years ended August
31, 1996, 1995 and 1994, respectively. Extended warranty expenses for these
same periods were $5.3 million, $5.0 million and $3.2 million, respectively,
before any allocation of other selling, general and administrative expenses.
Since August 1, 1995, the Company has sold to an unaffiliated third party all
extended warranty service contracts sold by the Company to customers on and
after such date. The Company records the sale of these contracts, net of any
related sales commissions and the fees paid to the third party, as a component
of net sales and immediately recognizes revenue upon the sale of such
contracts. Although the Company sells these contracts at a discount, the
amount of the discount approximates the cost the Company would incur to
service these contracts, while transferring the full obligation for future
services to a third party. Net revenue from extended warranty contracts sold
to the third party for the entire 1996 fiscal year and the one month of fiscal
1995 that such contracts have been sold was $9.4 million and $927,000,
respectively. For further discussions on extended warranty revenue, see
"Fiscal 1995 Accounting Change" and "Sale of Extended Warranty Service
Contracts".
Gross Profit
Gross profit for fiscal 1996 was $62.8 million, or 21.3% of net sales
as compared to $61.8 million, or 21.0% of net sales, for fiscal 1995, and
$46.8 million, or 24.0% of net sales, for fiscal 1994. The slight percentage
increase in 1996 is primarily due to the net margin contribution of the
Company's accelerated recognition of revenues from sales of its extended
warranty contracts to an unaffiliated third party, which was partially offset
by the negative impact of increased competition and soft demand affecting the
retail industry generally. The percentage decrease in fiscal 1995 was
primarily driven by a combination of the Company's change in accounting, soft
demand affecting the retail industry generally, increased competition (both in
number of competitors and corresponding increased price competition), and the
effects of price promotions of the Company principally related to the 14 new
store grand openings during the fiscal year. In addition, the Company
experienced a shift in product sales to the personal computer and home office
categories, which are lower margin items. The Company also experienced a
change by vendors in the type of incentive programs offered which, combined
with a decrease in the Company's inventory purchases from vendors with
substantial incentive programs, resulted in a reduction in the Company's rate
of vendor rebates, although for fiscal 1996 much of this decline was offset by
lower inventory prices as vendors offered alternative incentives enabling the
Company to acquire inventory at a lower cost.
Selling, General and Administrative Expenses
Selling, general and administrative expenses for fiscal 1996 were $62.2
million (before the consulting and severance costs discussed below) or 21.1%
of net sales as compared to $62.0 million, or 21.1% of net sales for fiscal
1995 and $40.4 million, or 20.7% of net sales, for fiscal 1994. Fiscal
1996 selling, general and administrative expenses as a percentage of sales
remained consistent with fiscal 1995 primarily due to an increase in
promotional and other fees derived from the Company's private label credit
card program which was offset by the effects of additional fixed costs related
to the Company's expansion in fiscal 1995 and soft retail sales on fixed
cost ratios and increased advertising costs primarily due to higher paper
costs. In fiscal 1995 and 1994, the Company benefited from certain
increased efficiencies resulting from the Company's expansion, as net sales
grew at a faster pace than related payroll and other expenses. However, in
1995 these benefits were offset by additional preopening costs and
advertising expenses related to promotional efforts in new markets as well
as direct marketing efforts associated with the 14 grand openings during
fiscal 1995.
During fiscal 1996, the Company hired a consulting firm to evaluate and
refine its store line operations. Together, the Company's management and the
consulting firm established and implemented the "Superior Customer Service"
strategy, which focuses on improving customer service and reducing costs by
streamlining store operational procedures. The cost associated with these
consulting services of $879,000 were expensed during fiscal 1996. Also, in
July 1996, two of the Company's executives resigned from the Company to pursue
other opportunities. The severance packages associated with these
resignations of $340,000 were expensed in July 1996. The impacts of these
costs (net of tax) on net income per share of the Company for the year ended
August 31, 1996 were decreases of $0.10 and $0.04 per share, respectively.
Other Income (Expense)
Interest expense increased by approximately $700,000 and $1.1 million in
fiscal years 1996 and 1995, respectively. The increase in fiscal 1996 was
primarily due to the Company using fixed and short-term borrowing arrangements
to restructure the debt incurred to fund the Company's expansion in fiscal
1995. The increase in fiscal 1995 was primarily due to the Company using
short-term borrowing arrangements to provide working capital and funds for the
significant expansion achieved in 1995.
Income Taxes
The Company's effective income tax rate was 35.2%, 19.7%, and 37.8% for
the fiscal years ended August 31, 1996, 1995 and 1994, respectively.
The effective rate of the income tax benefit for fiscal 1995 was negatively
impacted by an adjustment to the cost basis of property and equipment.
Net Income
During fiscal 1995, the Company changed to a straight-line method of
recognizing extended warranty revenue. The impact of this change was recorded
through a pro forma adjustment in fiscal 1994 and assumes application of the
straight-line method of accounting retroactive to September 1, 1992. The
amount shown in 1995 as "cumulative effect of change in accounting principle"
reflects the retroactive effect of applying the change on prior years (after
reduction for income taxes).
Net loss for fiscal years ending August 31, 1996 and 1995, before
certain non-recurring charges that are described below, were approximately
$632,000 and $850,000, respectively. Net loss for each of these periods,
after the charges, were $1.4 million and $2.9 million, respectively. The net
earnings improvement in 1996 was primarily due to the slight improvement in
gross profit margin due to the accelerated recognition of extended warranty
contract revenues partially offset by increased interest expense. During
fiscal 1996, the Company recorded certain non-recurring charges related to
consulting fees associated with reengineering store-line operations and
severance costs, which aggregated approximately $756,000 (after reduction for
income taxes).
Net loss for fiscal 1995, before certain non-recurring charges that are
described below, was approximately $850,000, compared to reported pro forma
net income of $3.7 million for fiscal 1994. Net loss for fiscal 1995, after
the charges, was approximately $2.9 million. The decrease in net income for
fiscal 1995 was largely due to increased competition and other factors that
had a negative impact on gross profits. See "Fiscal 1996 Overview" and
"Gross Profit." During fiscal 1995, the Company recorded certain non-recurring
charges related to merger costs and the cumulative effect of the change
in accounting principle, which aggregated approximately $2.1 million (after
reduction for income taxes).
Net loss per weighted average common share in fiscal 1996 and 1995,
before the charges discussed above were $.11 and $.15, respectively; whereas
pro forma net income per share was $.81 in fiscal 1994. Net loss per share in
fiscal 1996 and 1995, after the charges, were $.25 and $.53, respectively.
Along with the increased pressures on gross margin discussed above, the
increase in weighted average shares outstanding from 4,590,391 in fiscal 1994
to 5,565,942 in fiscal 1995 to 5,566,906 in fiscal 1996 also negatively
impacted year over year comparisons of net income (loss) per share.
Comparable Store Sales
Comparable store sales decreased by 13.6% in fiscal 1996, compared to
increases of 5.1% and 28.5% in fiscal 1995 and 1994, respectively. Except as
noted below, the comparable store sales calculation is based on the change in
sales of each store once it has been opened for 12 months. For fiscal 1994,
included in the comparable store sales calculation are certain non-retail
sales, which consist primarily of direct sales, generally in bulk, by the
Company to commercial buyers from its headquarters. If non-retail sales were
excluded, comparable store sales would have increased by 22.1%, for fiscal
1994. Beginning in fiscal 1995, comparable store sales are calculated using
same store format and retail sales only and begin comparisons in a store's
fifteenth month of operation. Included within the comparisons is data for new
Campo Concept stores opened to consolidate or replace older stores. The total
selling square footage of the nine replaced stores was approximately 80,000
square feet, while the total selling square footage of the six Campo Concept
stores opened as replacements is approximately 76,104 square feet. In each
case, the sales data from the newly-opened Campo Concept store is compared to
total sales from the one or two stores replaced in its relevant market area
from date of opening.
The following table sets forth, for each of the four quarters of fiscal
1996, 1995 and 1994, the percentage change in comparable store sales.
1st 2nd 3rd 4th Full
Quarter Quarter Quarter Quarter Year
Fiscal 1996 (6.6%) (12.8%) (10.1%) (20.6%) (13.6%)
Fiscal 1995 18.2% 9.0% (10.7%) 6.9% 5.1%
Fiscal 1994 20.7% 42.7% 40.1% 16.5% 28.5%
In general, comparable store sales can vary materially from quarter to
quarter based on changes in merchandise mix and ongoing merchandising and
operational improvements. In addition, comparable store sales are materially
impacted by competition, economic downturns or cyclical variations in the
consumer electronics and appliance industry.
Liquidity and Capital Resources
Historically, the Company's primary sources of liquidity have been from
cash from operations, revolving lines of credit, and from the Company's
initial and secondary public offerings. Net cash provided by operating
activities was $3.2 million in fiscal 1996, compared to $2.0 million used in
operating activities in fiscal 1995 and $9.9 million provided in fiscal 1994.
The increase in cash provided by operating activities in fiscal 1996 reflects
the decreases in inventory and receivable levels and an increase in earnings
as adjusted for non-cash charges. Total assets at August 31, 1996 were $119.0
million, a decrease of $16.7 million (12.3%) from August 31, 1995. The
decrease in assets includes decreases of $4.8 million in receivables, $3.9
million in inventory, and $3.4 million in deferred income taxes.
Long-term debt as of August 31, 1996 consisted of two term loans, one
with three banks and the other with a financial institution. Under its
original terms, the term loan with the banks accrued interest, payable
quarterly, based on one of the following, at the option of the borrower: (i)
the Prime Rate, (ii) LIBOR plus 2.40%, or (iii) the Commercial Paper Rate
plus 2.50% with the balance of all outstanding principal due and payable at
maturity on August 31, 1998. Outstanding amounts pursuant to this agreement
are collateralized by the Company's real estate. Effective June 1, 1996,
the loan agreement with the banks was amended to provide that the term loan
and the line of credit discussed below bear interest at the Prime Rate.
The outstanding principal balance and applicable interest rate on this term
loan as of August 31, 1996 were $15.7 million and 8.25% (the Prime Rate),
respectively.
The principal balance of the other term loan, which was $4.2 million at
August 31, 1996, accrues interest, payable monthly, at the average weekly
yield of 30 Day Commercial paper plus 1.80% (7.19% at August 31, 1996) with
the balance of all outstanding principal due and payable at maturity on August
30, 2002. Outstanding amounts pursuant to this agreement are collateralized
by the furniture, fixtures and equipment of the Company at certain of its
stores and warehouse leased facilities.
As part of the loan agreement with the banks discussed above, as of
August 31, 1996, the Company also has available to it a $10 million line of
credit. This line of credit accrues interest at the same rate as that of the
bank term loan; however,interest is payable monthly. As of August 31, 1996,
the Company had no borrowings outstanding on the line of credit. During
periods of peak purchasing, the Company uses this line of credit to finance
purchases.
Both of these loan facilities contain certain restrictive covenants
which require the Company to maintain minimum tangible net worth, as well as
maximum debt to tangible net worth and minimum fixed charge coverage ratios.
The term loan with the banks also contains a provision which prohibits the
Company from paying dividends on its common stock. As of August 31, 1996, the
Company was not in compliance with certain of the covenants contained in the
bank term loan and line of credit facility, but the Company has secured
waivers of these covenants from the banks.
On December 1, 1996, the term loan and line of credit facility with the
banks was amended to (i) accelerate the maturity date on both facilities from
August 31, 1998 to September 1, 1997, (ii) decrease the amount available under
the line of credit to $5 million from January 1, 1997 through maturity, (iii)
provide waivers of the Company's noncompliance with certain financial
covenants for August 31, 1996 and the first quarter of fiscal 1997, suspend
certain financial covenants through maturity and amend other financial
covenants to be in line with the Company's fiscal 1997 budget and (iv) add
certain inventory collateral to secure both facilities. The Company paid a
small fee to secure the waivers and also agreed to an increase in the
quarterly commitment fee payable on unfunded amounts under the line of
credit facility. As a result of this amendment, it will be necessary for the
Company to secure a replacement line of credit and term loan facility prior to
the end of fiscal 1997.
As discussed in "Business," the Company has recently engaged a financial
consultant to assist management in conducting a comprehensive review of the
Company's operations and recommending measures that could improve the
Company's performance. The information to be obtained from this study is
expected to help ensure that the Company will be in a position to obtain the
timely necessary replacement of the line of credit and term loan facility.
Management believes that it will be able to timely replace this facility on
terms that, in the aggregate, would not be materially more onerous than those
contained in the current facility and that the initiatives it implemented in
fiscal 1996, the recently begun comprehensive study of its operations and the
amendment to the credit facility should, given enough time to be fully
implemented, enable the Company to reduce its operating costs and become more
efficient and eventually improve its financial performance if the overall
conditions of the industry stabilize. However, the performance of the
Company's retail industry sector has been weak for a considerable period of
time and any continued deterioration in retail industry conditions could
materially impair the Company's ability to replace its bank credit facility
at levels necessary to sustain the Company's current level of operations
or at the current interest rates of such facilities. In addition, the
possibility exists that fundamental changes to the Company's operations could
be implemented following the receipt of the results of the current
comprehensive study, and no assurance can be given that the measures that
have already been implemented or any measures that may be implemented
following the current study will be effective in improving the Company's
performance.
As of August 31, 1996, the Company also uses several "floor plan"
finance companies to finance the majority of its inventory purchases. In
addition, the Company finances some of its inventory purchases through open-
account arrangements with various vendors. The Company has an aggregate
borrowing limit with the floor plan finance companies of approximately $123
million with outstanding borrowings being collateralized with merchandise
inventory and vendor receivables. Payment terms under these agreements range
from 50 to 120 days. During the third quarter ended May 31, 1995, the Company
negotiated new payment terms with two of the finance companies, making
up the majority of the available borrowing limit, to allow the Company to make
payments when the underlying merchandise is sold. The impact of the change
is expected to more closely match cash requirements with associated
merchandise transactions. As of August 31, 1996, the Company was not in
compliance with certain of the financial covenants contained in one of its
floor plan financing agreements, but the Company has secured waivers of these
covenants from the finance company. On December 6, 1996, the Company
agreed to reduce its aggregate borrowing limit under these arrangements to
$105 million, which management believes is more in line with the Company's
needs at this time.
Long-term debt also consists of two notes payable to a former
shareholder related to service contracts. The outstanding principal balance
on these notes of $569,782 as of August 31, 1996 accrues interest, payable
monthly, at 8.50% with the balance of all outstanding principal due and
payable at maturity on August 31, 2001.
Net cash used in financing activities was $2.0 million in fiscal 1996,
compared to $21.5 million provided by financing activities in fiscal 1995 and
$254,000 used in fiscal 1994. The primary use of cash in fiscal 1996
consisted of principal payments on the term loans. The primary source of cash
during fiscal 1995 was derived from short-term borrowings, which were
refinanced in August 1995 through term loans with three banks and a financial
institution. The primary use of cash during fiscal 1994 was related to the
repayment of debt associated with the credit card portfolio of a retail chain
acquired by Campo during fiscal 1993, which was offset by the proceeds of the
secondary offering.
Capital expenditures of $949,000 were incurred in fiscal 1996 related to
equipment purchases and leasehold improvements, and these expenditures were
funded with cash on hand and cash provided by operating activities. The
Company incurred capital expenditures of $19.4 million in fiscal 1995
primarily in connection with the opening of new Campo Concept stores, and
these expenditures were funded with cash on hand as well as short-term
borrowings. During fiscal 1994, the Company used $15.2 million for purchases
of property and equipment relating to the opening of new Campo Concept stores,
for building and improvements to a new warehouse and for upgrades to the
Company's computer system. The expenditures in fiscal 1994 were funded with
cash provided by operating activities and the proceeds of the Company's
initial and secondary public offerings. There are no store openings planned
for fiscal 1997.
In addition to its available line of credit discussed above, the Company
believes that its existing funds, its operating cash flows and its vendor and
inventory financing arrangements are sufficient to satisfy its expected cash
requirements in fiscal 1997 and, assuming a replacement for the bank term loan
and line of credit facility is secured by the end of fiscal 1997, for the
foreseeable future.
Seasonality
Seasonality affects the Company's financial results as it does with most
retail businesses. Net sales and gross margin on a quarterly basis are
impacted by fluctuations in the level of consumer purchases, seasonal demand
for certain product categories, timing of Company promotional programs and
fluctuations in manufacturer's rebate programs. Net sales tend to be highest
during the Company's second and fourth fiscal quarters. The second quarter,
commencing December 1, is favorably impacted by the Christmas selling season
and during the fourth quarter the Company benefits from the summer peak in
sales of room air conditioners and other refrigeration products.
The Company's unaudited quarterly operating results for each quarter of
fiscal 1996 and 1995 were as follows:
Fiscal 1996
(In thousands, except per share amounts)
First Second Third Fourth
Quarter Quarter Quarter Quarter
Ended Ended Ended Ended
Nov. 30, Feb. 28, May 31, Aug. 31,
-------- -------- ------- --------
Net sales $78,955 $89,865 $60,189 $65,958
Gross profit 17,877 18,298 12,919 13,690
Net income (loss) 275 468 (1,402) (729)
Per Share Data:
Net income (loss) 0.05 0.08 (0.25) (0.13)
Fiscal 1995
(In thousands, except per share amounts)
First Second Third Fourth
Quarter Quarter Quarter Quarter
Ended Ended Ended Ended
Nov. 30, Feb. 28, May 31, Aug. 31,
-------- -------- ------- --------
Net sales $61,602 $86,768 $64,283 $81,967
Gross profit 14,979 17,269 14,951 14,578
Income (loss) before cumulative effect
of change in accounting principle 1,407 1,031 (44) (3,437)
Cumulative effect of change in
accounting principle (1,892) ---- ----- ----
Net income (loss) (485) 1,031 (44) (3,437)
Per Share Data:
Income (loss) before cumulative
effect of change in
accounting principle 0.25 0.19 (0.01) (0.62)
Cumulative effect of change in
accounting principle (0.34) ---- ---- ----
Net income (loss) (0.09) 0.19 (0.01) (0.62)
During the third quarter of 1995, the Company changed its method of
recognizing revenue and related direct expense with respect to its extended
warranty contracts from a historical expenses incurred method to a straight-
line method. Also, the first and second quarters of 1995 have been restated
so that all 1995 quarters reflect the change in accounting principle with the
effect that net income for the quarters ended November 30, 1994 and February
28, 1995 was reduced by $135,886 and $167,920, respectively, or $0.03 per
share for each quarter, see "Fiscal 1995 Accounting Change".
Impact of Inflation
In management's opinion, inflation has not had a material impact on the
Company's financial results for the past three years. Technological advances
coupled with increased competition have caused prices on many of the Company's
products to decline. Those products that have increased in price have in most
cases done so in proportion to current inflation rates. Management does not
anticipate that inflation will have a material impact on the Company's
financial results in the future.
Impact of Accounting Standards
For fiscal year ending August 31, 1997, the Company's financial
statements will incorporate Statement of Financial Accounting Standards (SFAS)
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-
Lived Assets to be Disposed of" and SFAS No. 123, "Accounting for Stock-Based
Compensation". Management expects that the adoption of these statements will
not have a significant impact on the results of operations or financial
condition of the Company.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CAMPO ELECTRONICS, APPLIANCES AND COMPUTERS, INC.
INDEX TO FINANCIAL STATEMENTS
Page
Campo Electronics, Appliances and Computers, Inc. -
Financial Statements Report of Independent Accountants 27
Balance Sheets as of August 31, 1996 and 1995 27
Statements of Operations for the Years Ended August
31, 1996, 1995, and 1994 29
Statements of Shareholders' Equity for the Years Ended
August 31, 1996, 1995, and 1994 30
Statements of Cash Flows for the Years Ended August 31,
1996, 1995 and 1994 31
Notes to Financial Statements 32
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders
Campo Electronics, Appliances and Computers, Inc.
We have audited the accompanying balance sheets of Campo Electronics,
Appliances and Computers, Inc. as of August 31, 1996 and 1995, and related
statements of operations, shareholders' equity and cash flows for each of the
three years in the period ended August 31, 1996. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform our audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Campo Electronics, Appliances
and Computers, Inc. as of August 31, 1996 and 1995, and the results of its
operations and its cash flows for each of the three years in the period ended
August 31, 1996 in conformity with generally accepted accounting principles.
As discussed in Note 2 to the financial statements, the Company changed its
method of accounting for extended warranty contracts in 1995. As discussed in
Note 1 to the financial statements, the Company adopted the provisions of
Statement of Financial Accounting Standards No. 115, "Accounting for Certain
Investments in Debt and Equity Securities" in 1995 and No. 109, "Accounting
for Income Taxes" in 1994.
/s/ Coopers & Lybrand L.L.P.
COOPERS & LYBRAND L.L.P.
New Orleans, Louisiana
November 1, 1996, except for
Notes 4 and 5 for which the date is
December 6, 1996.
CAMPO ELECTRONICS, APPLIANCES AND COMPUTERS, INC.
BALANCE SHEETS
AUGUST 31, 1996 AND 1995
ASSETS 1996 1995
Current assets:
Cash and cash equivalents $ 3,303,822 $ 3,105,320
Investments in marketable securities 129,788 218,738
Receivables (net of an allowance of
$2.9 million in 1996 and $3.8 million
in 1995) 14,561,102 19,403,675
Merchandise inventory 56,387,842 60,258,407
Deferred income taxes 3,033,000 4,475,466
Other 471,399 1,749,315
------------ ------------
Total current assets 77,886,953 89,210,921
Property and equipment, net 36,376,959 39,667,520
Deferred income taxes 1,234,000 3,145,734
Intangibles and other 3,535,639 3,685,627
------------ ------------
$119,033,551 $135,709,802
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 2,478,179 $ 2,459,266
Accounts payable 47,793,786 54,303,767
Accrued expenses 7,169,218 7,219,505
Deferred revenue 4,621,294 6,693,674
------------ ------------
Total current liabilities 62,062,477 70,676,212
------------ ------------
Long-term debt, less current portion 18,191,371 20,257,360
Deferred revenue 4,650,296 9,271,590
22,841,667 29,528,950
------------ ------------
Commitments and contingencies (Notes 5, 6 and 12)
Shareholders' equity:
Preferred stock, no par value, 500,000
shares authorized, no shares
issued or outstanding ----- -----
Common stock, $.10 par value, 20,000,000
shares authorized, 5,566,906 issued
and outstanding at August 31, 1996 and 1995 556,691 556,691
Paid-in capital 32,373,306 32,373,306
Retained earnings 1,388,849 2,776,910
Less:
Unearned compensation ----- (67,500)
Unrealized loss on marketable (189,439) (134,767)
------------ ------------
securities
Total shareholders' equity 34,129,407 35,504,640
------------ ------------
$119,033,551 $135,709,802
============ ============
The accompanying notes are an integral part of these financial statements.
CAMPO ELECTRONICS, APPLIANCES AND COMPUTERS, INC.
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED AUGUST 31, 1996, 1995 AND 1994
1996 1995 1994
Net sales $294,967,168 $294,619,960 $194,620,506
Cost of sales 232,182,625 232,842,703 147,812,529
------------ ------------ ------------
Gross profit 62,784,543 61,777,257 46,807,977
Selling, general and
administrative expenses 62,188,708 61,972,378 40,366,497
Professional services 879,368 ----- -----
Severance costs 340,430 ----- -----
Merger costs ----- 303,413 -----
----------- ----------- -----------
Operating income (loss) (623,963) (498,534) 6,441,480
Other income (expense):
Interest expense (2,100,590) (1,399,388) (299,582)
Interest income 137,386 94,602 125,176
Other, net 445,106 504,075 409,202
----------- ----------- -----------
(1,518,098) (800,711) 234,796
----------- ----------- -----------
Income(loss) before income
taxes and cumulative effect
of change in accounting
principle (2,142,061) (1,299,245) 6,676,276
Income tax expense (benefit) (754,000) (256,000) 2,519,581
----------- ----------- -----------
Net income (loss) before
cumulative effect of change
in accounting principle (1,388,061) (1,043,245) 4,156,695
Cumulative effect of change in
accounting principle (Note 2) ----- (1,891,948) -----
----------- ----------- -----------
Net income (loss) $(1,388,061) $(2,935,193) $ 4,156,695
=========== =========== ===========
Pro forma income data assuming
certain adjustments (Note 10)
(unaudited):
Net income (loss) ----- $(1,043,245) $ 3,734,830
Per share data:
Net income (loss) before
cumulative effect of change
in accounting principle ($0.25) ($0.19) $0.91
Cumulative effect of change
in accounting principle ----- ($0.34) -----
----------- ---------- ----------
Net income (loss) ($0.25) ($0.53) $0.91
=========== ========== ==========
Pro forma net income (loss) ----- ($0.19) $0.81
=========== ========== ==========
Weighted average number of
common shares outstanding 5,566,906 5,565,942 4,590,391
The accompanying notes are an integral part of the financial statements.
CAMPO ELECTRONICS, APPLIANCES AND COMPUTERS, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED AUGUST 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
Common Stock Total
Shares Paid-in Retained Unearned Shareholder's
Outstanding Amount Capital Earnings Compensation Other Equity
----------- ------ ------- -------- ------------ ----- ------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, September 1, 1993 4,065,006 $447,572 $21,572,368 $1,555,408 $(189,000) $(5,611,144) $17,775,204
Proceeds from secondary
offering (including
overallotment) 1,493,900 149,390 16,308,311 ----- ----- ----- 16,457,701
Retirement of treasury
stock ----- (41,071) (5,570,073) ----- ----- 5,611,144 -----
Amortization of stock
awards ----- ----- ----- ----- 47,250 ----- 47,250
Net income ----- ----- ----- 4,156,695 ----- ----- 4,156,695
--------- -------- ---------- --------- --------- ---------- -----------
Balance, August 31, 1994 5,558,906 555,891 32,310,606 5,712,103 (141,750) 0 38,436,850
Stock options exercised 8,000 800 62,700 ----- ----- ----- 63,500
Unrealized loss on
marketable securities ----- ----- ----- ----- ----- (134,767) (134,767)
Amortization of stock
awards ----- ----- ----- ----- 74,250 ----- 74,250
Net loss ----- ----- ----- (2,935,193) ----- ----- (2,935,193)
--------- -------- ----------- --------- --------- ---------- -----------
Balance, August 31, 1995 5,566,906 556,691 32,373,306 2,776,910 (67,500) (134,767) 35,504,640
Unrealized loss on
marketable securities ----- ----- ----- ----- ----- (54,672) (54,672)
Amortization of stock
awards ----- ----- ----- ----- 67,500 ----- 67,500
Net loss ----- ----- ----- (1,388,061) ----- ----- (1,388,061)
--------- -------- ----------- ---------- --------- --------- ----------
Balance, August 31, 1996 5,566,906 $556,691 $32,373,306 $1,388,849 $ 0 $ (189,439) $34,129,407
========= ======== =========== ========== ========= ========== ===========
The accompanying notes are an integral part of these financial
statements.
CAMPO ELECTRONICS, APPLIANCES AND COMPUTERS, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED AUGUST 31, 1996, 1995 AND 1994
1996 1995 1994
Cash flow from operating activities:
Net income (loss) $(1,388,061) $(2,935,193) $4,156,695
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 5,454,334 5,393,961 1,809,008
Cumulative effect of change in
accounting principle ----- 1,891,948 -----
Deferred income taxes 3,388,470 (2,490,244) (865,730)
Provision for uncollectable
receivables 2,294,000 2,140,000 508,000
Stock awards 67,500 74,250 47,250
Gain on sale of assets ----- (7,507) -----
(Increase) decrease in assets:
Receivables 2,548,573 (9,331,613) 5,959,594
Merchandise inventory 3,870,565 (11,082,489) (22,225,377)
Other current assets 251,697 (2,692,175) 29,059
Increase (decrease) in liabilities:
Accounts payable (6,509,981) 12,479,915 16,353,191
Accrued expenses (50,287) (140,853) 2,211,452
Deferred revenue (6,693,674) 4,675,018 1,931,682
----------- ----------- ------------
Net cash provided by (used
in) operating activities 3,233,136 (2,024,982) 9,914,824
----------- ----------- ------------
Cash flow from investing activities:
Purchase of property and equipment (948,695) (19,389,098) (15,174,526)
Proceeds from sale of assets ----- 92,747 -----
Sale of marketable securities ----- ----- 4,599,323
Purchase of marketable securities ----- ----- (422,505)
Acquisition of SRI ----- ----- (467,125)
Increase in other assets (38,863) (35,164) (65,816)
----------- ----------- ------------
Net cash used in investing
activites (987,558) (19,331,515) (11,530,649)
----------- ----------- ------------
Cash flow from financing activities:
Increase (decrease) in long-term
debt (2,047,076) 21,454,163 (3,438,392)
Borrowings under line of credit 65,300,000 ----- 10,000,000
Repayments under line of credit (65,300,000) ----- (23,273,033)
Proceeds from secondary offering
of securities ----- ----- 16,457,701
Proceeds from redemption of stock
options ----- 63,500 -----
----------- ----------- ------------
Net cash provided by (used
in) financing activities (2,047,076) 21,517,663 (253,724)
----------- ----------- ------------
Net increase(decrease) in cash and
cash equivalents 198,502 161,166 (1,869,549)
Cash and cash equivalents at
beginning of period 3,105,320 2,944,154 4,813,703
----------- ----------- ------------
Cash and cash equivalents at
end of period $3,303,822 $3,105,320 $2,944,154
----------- ----------- ------------
Supplemental disclosures of cash
flow information:
Cash paid during the period for:
Interest $1,767,496 $1,235,439 $ 576,618
=========== =========== ============
Income Taxes $ 118,240 $3,874,187 $2,811,490
=========== =========== ============
Supplemental schedule of noncash
investing and financing activities:
Assets acquired under capital
lease $ ----- $ ----- $ 292,311
=========== =========== ============
Retirement of treasury stock $ ----- $ ----- $5,611,144
=========== =========== ============
The accompanying notes are an integral part of these financial statements.
CAMPO ELECTRONICS, APPLIANCES AND COMPUTERS, INC.
NOTES TO FINANCIAL STATEMENTS
1. Organization and Summary of Significant Accounting Policies:
a. Organization
The Company is a specialty retailer of name brand consumer electronics,
major appliances, computers and home office products with 31 stores in
Louisiana, Alabama, Mississippi, Northeast Texas, Florida and Tennessee as of
August 31, 1996.
b. Marketable Securities
Marketable securities consist of common stock with a cost basis of $435,335
at August 31, 1996 and 1995. During fiscal year 1995, the Company adopted
Statement of Financial Accounting Standards (SFAS) No. 115, "Accounting
for Certain Investments in Debt and Equity Securities". The Company has
classified its investments in common stock available for sale in accordance
with SFAS No. 115. As such, these investments are carried at fair value with
net unrealized gains or losses reported net of tax, as a separate component of
shareholders' equity. At August 31, 1996 and 1995, the Company had unrealized
holding losses of $305,547 and $216,597, respectively.
c. Merchandise Inventory
Merchandise inventory is stated at the lower of cost or market, whereby
cost is determined using the average cost method.
d. Property and Equipment
Property and equipment is stated at cost less accumulated depreciation and
amortization. Depreciation and amortization are calculated using the
straight-line method over the assets' estimated useful lives, which range from
three to nineteen years. Property held under capital leases is stated at the
lower of the present value of the minimum lease payments at the lease or
market value and is amortized over the lease term or the estimated useful life
of the asset, whichever is shorter.
Expenditures for maintenance, repairs and minor renewals are charged to
operating expenses as incurred. Major renewals and betterments are
capitalized. Upon sale or disposal of depreciable assets, the related cost
and related accumulated depreciation are removed from the accounts with
resulting gains or losses being reflected as other income (expense).
e. Intangibles
Goodwill arose from the acquisition of Shreveport Refrigeration Inc. in
July 1993 and is being amortized over a 35 year period on a straight-line
basis. The Company assesses goodwill on a periodic basis using operating
profits from the Company's Northern region to measure whether or not goodwill
has been impaired. Goodwill at August 31, 1996 and 1995 in the amounts of
$2,856,000 and $2,954,000, respectively (net of accumulated amortization of
$274,000 and $177,000) is included in intangibles and other assets.
f. Preopening Expenses
Preopening expenses of new retail stores are deferred and amortized on a
straight-line basis over 12 months following the opening of each new retail
store. Preopening expenses at August 31, 1996 and 1995 in the amounts of
$175,000 and $1,074,000, respectively, are included in other current assets.
g. Deferred Revenues
The Company sells extended warranty contracts which cover periods beyond
the warranty period covered by the manufacturers' warranties. During fiscal
year 1994, the Company recognized contract revenues and expenses directly
related to the sale of contracts over the lives of the contracts based on
historical patterns of expenses incurred. During fiscal 1995, the Company
changed its method of accounting for these revenues and expenses to recognize
extended warranty contract sales and the associated sales commissions over the
term of each contract on a straight-line basis. Expenses such as
administrative, advertising and repairs are charged to operations as incurred.
(See Note 2.)
Effective August 1, 1995, the Company agreed to sell to an unaffiliated
third party all extended warranty service contracts sold by the Company
subsequent to July 31, 1995. Revenue is recognized from the sale of these
contracts at the time of sale, net of any related sales commissions and fees
paid to the third party, as a component of net sales.
h. Income Taxes
The Company accounts for income taxes in accordance with SFAS No. 109,
"Accounting for Income Taxes". SFAS No. 109 requires recognition of deferred
tax liabilities and assets for the expected future tax consequences of events
that have been included in the financial statements or tax returns, as well as
requiring the gross-up of assets and liabilities for the effects of deferred
taxes in connection with purchase business combinations. Under this method,
deferred tax assets and liabilities are determined based on the difference
between the financial statement and tax bases of assets and liabilities using
enacted tax rates in effect for the year in which the differences are expected
to reverse. The Company recognizes deferred tax assets if it is more likely
than not that a benefit will be realized. Previously, the Company reported
income taxes under Accounting Principles Board Opinion No. 11, "Accounting for
Income Taxes." The adoption of SFAS No. 109 did not have a material effect on
the Company's financial statements.
i. Earnings per Share
Earnings per share is computed using the weighted average number of shares
of common stock and common stock equivalents outstanding during the year.
j. Statement of Cash Flows
For purposes of the Statement of Cash Flows, the Company considers all
highly liquid debt instruments purchased with an original maturity of three
months or less to be cash equivalents.
k. Revenue Recognition
Revenue is recognized at the time the customer either takes possession of
the merchandise or such merchandise is delivered to the customer. Net sales,
which includes warranty revenue, consist of gross sales less discounts and
returns and allowances.
l. Advertising Costs
Advertising costs are expensed as incurred and included in selling, general
and administrative expenses in the accompanying statement of operations. Net
advertising expense was $13.6 million, $14.0 million and $9.2 million for the
years ended August 31, 1996, 1995 and 1994, respectively. These costs relate
to advertising the Company's name and promoting the products it sells in
newspapers and on radio and television.
m. Risk and Uncertainties
The diversity of the Company's products, customers, suppliers, and
geographic operations significantly reduces the risk that a severe impact will
occur in the near term as a result of changes in its customer base,
competition, sources of supply or markets.
Financial instruments which potentially expose the Company to concentration
of credit risk, as defined by SFAS No. 105, consist primarily of cash and cash
equivalents and accounts receivable. The Company's cash equivalents consist
principally of overnight investments with financial institutions which exceed
balances insured by the Federal Deposit Insurance Corporation. A significant
portion of the Company's vendor related receivables are with its leading
manufacturers. Although the Company does not currently foresee a credit risk
associated with these receivables, repayment is dependent upon the financial
stability of these manufacturers.
The preparation of financial statements in conformity with generally
accepted accounting principles requires that management make estimates and
assumptions that affect the reported amounts of assets and 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 these
estimates.
n. New Financial Accounting Standards
For fiscal year ending August 31, 1997, the Company's financial statements
will incorporate SFAS No. 121, "Accounting for the Impairment of Long-Lived
Assets and Long-Lived Assets to be Disposed of" and SFAS No. 123, "Accounting
for Stock-Based Compensation". Management expects that the cumulative effect
of adopting these statements will not have a significant impact on the results
of operations or financial condition of the Company.
o. Fair Value of Financial Instruments
Cash and cash equivalents, trade accounts receivable, trade accounts
payable and accrued liabilities are financial instruments for which the
carrying value approximates fair value because of the short-term maturity of
these instruments. Investments in marketable securities are carried at their
fair market value, which is determined using quoted market prices. The
Company's long-term debt approximates fair value due to the variable
interest rates related to these instruments.
p. Reclassifications
Certain amounts in prior years have been reclassified to conform to
classifications adopted in fiscal 1996.
2. Change in Accounting
In the third quarter of fiscal 1995, the Company changed its method of
recognizing extended warranty contract revenue and direct expenses, primarily
commissions paid for the sale of the contracts, from recognizing such revenues
and expenses over the life of the contracts based on historical patterns of
expenses incurred to the straight-line method. The new method, adopted
effective September 1, 1994, is the alternative prescribed by the Financial
Accounting Standards Board Technical Bulletin No 90-1, and is currently being
used by the Company's major competitors. The change was made due primarily to
continuing changes in the Company's product mix and warranty expense patterns
that resulted in its prior method of amortizing extended warranty contract
revenue not always reflecting current patterns at which warranty expenses were
incurred. This change in accounting has no impact on the Company's cash flow,
and expenses not directly associated with the acquisition of the extended
warranty contracts, such as repair costs and administrative expenses, are
expensed as they are incurred.
The cumulative effect of change in accounting principle in the amount of
$1,891,948 reflects the retroactive effect of applying the straight-line
method to prior years after reduction for income taxes in the amount of
$1,159,581. For purposes of comparability, the impact of the change in
accounting principle was recorded through pro forma adjustments for the year
ended August 31, 1994. The pro forma adjustments related to the change in
accounting principle assume application of the straight-line method of revenue
recognition retroactive to September 1, 1992. (See Note 10).
3. Property and Equipment:
Property and equipment less accumulated depreciation and amortization is as
follows:
August 31,
----------
1996 1995
---- ----
Land $ 7,646,594 $ 7,621,594
Buildings (19 years) 15,022,521 14,976,225
Leasehold improvements (10 to 15 years) 11,793,602 11,669,524
Furniture, fixtures and equipment
(5 to 7 years) 15,153,794 14,442,821
Automobiles and trucks (3 to 5 years) 506,713 497,428
------------ -----------
50,123,224 49,207,592
Less accumulated depreciation and
amortization 13,746,265 9,540,072
------------ -----------
$ 36,376,959 $39,667,520
============ ===========
Depreciation expense related to property and equipment for the years ended
August 31, 1996, 1995, and 1994 was $4.2 million, $3.3 million and $1.6
million, respectively. Equipment and vehicles with a cost of approximately
$798,000 was held under capital lease as of August 31, 1996 and 1995.
Accumulated amortization related to these capital lease assets was
approximately $632,000 and $521,000 as of August 31, 1996 and 1995,
respectively.
4. Accounts Payable:
Accounts payable include approximately $43.9 million and $48.7 million as
of August 31, 1996 and 1995, respectively, under "floor plan" agreements with
finance companies. These floor plan agreements have aggregate borrowing
limits of approximately $123 million and terms of 50 to 120 days. The
agreements provide no specific termination date and are cancellable at the
option of either party. Outstanding amounts pursuant to these agreements are
collateralized by merchandise inventory and certain receivables of the
Company. These arrangements contain certain restrictive covenants which
require the Company to maintain certain tangible net worth, debt and earnings
requirements. As of August 31, 1996, the Company was not in compliance with
certain of the financial covenants contained in one of its floor plan
financing agreements, but the Company has secured waivers of these covenants
from the finance company. On December 6, 1996, the Company agreed to reduce
its aggregate borrowing limit under these arrangements to $105 million, which
management believes is more in line with the Company's needs at this time.
5. Debt:
Long-term obligations
Long-term obligations as of August 31, 1996 and 1995 consist of the
following:
August 31,
----------
1996 1995
---- ----
Long-term debt, with interest payable
at variable rates $20,521,182 $22,433,055
Capital lease obligations 148,368 283,571
----------- -----------
20,669,550 22,716,626
Less current maturities 2,478,179 2,459,266
----------- -----------
$18,191,371 $20,257,360
=========== ===========
Long-term debt as of August 31, 1996 consisted of two term loans, one with
three banks and the other with a financial institution. The term loan with
the banks accrues interest, payable quarterly, based on one of the following,
at the option of the borrower: (i) the Prime Rate, (ii) LIBOR plus 2.40%,
or (iii) the Commercial Paper Rate plus 2.50% with the balance of all
outstanding principal due and payable at maturity on August 31, 1998.
Effective June 1, 1996, the loan agreement with the banks was amended such
that the term loan and the line of credit bear interest at the Prime Rate.
Outstanding amounts pursuant to this agreement are collateralized by the
Company's real estate. The outstanding principal balance and applicable
interest rate on this loan as of August 31, 1996 were $15.7 million and 8.25%
(the Prime Rate), respectively. The principal balance of the other term loan
of $4.2 million at August 31, 1996 accrues interest, payable monthly, at the
average weekly yield of 30 Day Commercial paper plus 1.80% (7.19% at August
31, 1996) with the balance of all outstanding principal due and payable at
maturity on August 30, 2002. Outstanding amounts pursuant to this agreement
are collateralized by the furniture, fixtures and equipment of the Company.
These arrangements contain certain restrictive covenants which require the
Company to maintain minimum tangible net worth, as well as maximum debt to
tangible net worth and minimum fixed charge coverage ratios. The term loan
with the banks also contains a provision which restricts the Company from
paying dividends. As of August 31, 1996, the Company was not in compliance
with certain of these covenants, but the Company has secured waivers of these
covenants from the banks and the financial institution. Long-term debt also
consists of two notes payable to a former shareholder related to service
contracts. See footnote 8 for details on the notes payable to former
shareholder.
Subsequent to August 31, 1996, the term loan and line of credit facility
with the banks was amended to ( i) accelerate the maturity date on both
facilities from August 31, 1998 to September 1, 1997, (ii) decrease the
amount available under the line of credit to $5 million from January 1, 1997
through maturity, (iii) provide waivers of the Company's noncompliance
with certain financial covenants for August 31, 1996 and the first quarter
of fiscal 1997, suspend certain financial covenants through maturity and amend
other financial covenants to be in line with the Company's fiscal 1997 budget
and (iv) add certain inventory collateral to secure both facilities. The
Company paid a small fee to secure the waivers and also agreed to an
increase in the quarterly commitment fee payable on unfunded amounts under
the line of credit facility. As a result of this amendment, it will be
necessary for the Company to secure a replacement line of credit and term loan
facility prior to the end of fiscal 1997. Management believes that it will be
able to replace the line of credit facility and to repay the amount
outstanding on the term loan and any amount outstanding on the line of credit
facility by August 31, 1997.
Annual maturities on long-term debt and capital leases during the next five
years are as follows:
Years Ending
August 31, Annual Maturity
------------ ---------------
1997 $ 2,478,179
1998 14,786,616
1999 808,373
2000 847,806
2001 912,548
Thereafter 836,028
------------
$ 20,669,550
============
Also, as of August 31, 1996, the Company has available to it a $10 million
line of credit as stipulated by the loan agreement with the banks discussed
above. This line of credit accrues interest at the same interest rate as the
term loan; however, interest is payable monthly following the execution of the
line of credit notes. As of August 31, 1996, the Company had no borrowings
outstanding on the line of credit. During periods of peak purchasing, the
Company uses this line of credit to finance purchases. The weighted average
interest rates applicable to short term borrowings during fiscal 1996 and 1995
were 8.02% and 8.01% , respectively.
6. Lease Commitments:
The Company's retail operations are conducted principally in leased
facilities under agreements which expire at various dates through 2012. In
addition to base rent, certain lease agreements require the Company to pay
executory costs such as real estate taxes, utilities and common area
maintenance. For certain locations, the Company pays rent based upon a
specified percentage of sales. Generally, the leases provide for renewals for
various periods at stipulated rates. (See Note 8 for a description of
operating leases with related parties.)
Future minimum lease payments under the above non-cancellable operating
leases as of August 31, 1996 are as follows:
1997 $ 4,936,384
1998 4,324,895
1999 4,218,904
2000 4,255,505
2001 4,308,493
Thereafter 16,031,627
-------------
$ 38,075,808
=============
Rental expense, including common area maintenance, insurance and real
estate taxes, pursuant to the above operating leases, net of sublease rental
income, amounted to approximately $5.7 million, $4.7 million and $3.0 million
for the years ended August 31, 1996, 1995 and 1994, respectively.
7. Income Taxes:
The components of the provision for income taxes for the years ended August
31, 1996, 1995 and 1994 are as follows:
1996 1995 1994
---- ---- ----
Current ($4,142,470) $2,234,244 $3,412,428
Deferred 3,388,470 (2,490,244) (892,847)
----------- ---------- ----------
Income tax expense (benefit) ($754,000) ($256,000) $2,519,581
========== ========= ==========
The provisions (benefits) for income taxes as reported are different from
the provisions (benefits) computed by applying the statutory federal income
tax rate. The differences are reconciled as follows:
1996 1995 1994
---- ---- ----
Federal income taxes at statutory rate ($728,301) ($441,743) $2,269,934
State income taxes net of federal
benefit (80,970) (42,875) 249,647
Adjustment to prior year provision ---- 173,366 ----
Other 55,271 55,252 ----
--------- --------- ----------
Income tax expense (benefit) ($754,000) ($256,000) 2,519,581
========= ========= ==========
Effective tax rate 35.2% 19.7% 37.8%
========= ========= ==========
The components of the Company's net deferred tax asset as of August 31,
1996 and 1995 are as follows:
1996 1995
---- ----
Deferred tax assets:
Unrealized loss on marketable securities 116,100 81,830
Receivables, net 1,032,600 1,404,000
Merchandise inventory 785,500 505,000
Deferred revenue 3,502,800 4,805,981
Alternative minimum tax credit 173,000 -----
Cumulative effect of change in
accounting principle - deferred
revenue ----- 1,159,581
Other
307,900 308,707
---------- ----------
Total deferred tax asset 5,917,900 8,265,099
---------- ----------
Deferred tax liabilities:
Preopening costs 66,000 405,804
Property and equipment, net 924,300 161,748
Trade discounts 592,900 -----
Other 67,700 76,347
---------- ----------
Total deferred tax liabilities 1,650,900 643,899
Net deferred tax asset $4,267,000 $7,621,200
========== ==========
Of the gross deferred tax assets at August 31, 1996 approximately $4.2
million can be realized by carrybacks or offsetting of deferred tax
liabilities. Realization is dependent on generating sufficient future
earnings. Although realization is not assured, management believes it is more
likely than not that all of the deferred tax asset will be realized. The
amount of the deferred tax asset considered realizable, however, could be
reduced in the near term if estimates of future earnings are reduced.
8. Related Party Transactions:
The Company conducts a portion of its business in property leased by its
former majority shareholder. During the years ended August 31, 1996, 1995 and
1994, the Company made payments to such former shareholder (or on behalf of
such former shareholder) in the approximate amounts of $161,000, $189,000 and
$177,000, respectively, representing rentals under the above arrangements.
Notes payable to former shareholder related to personal service contracts
were $569,782 and $657,535 as of August 31, 1996 and 1995, respectively.
These notes accrue interest, payable monthly, at 8.50% and such interest
amounted to approximately $53,000, $60,000 and $225,000 during fiscal years
1996, 1995 and 1994, respectively. On April 29, 1994, $2,769,678 was paid
to the former shareholder with proceeds from the secondary offering.
A Director of the Company is the managing partner of the law firm which
serves as the Company's general counsel. During fiscal 1996, 1995 and 1994,
$173,000, $205,000 and $167,000, respectively, were paid in fees to this firm.
The Company engages in certain business transactions with an entity owned
by its former majority shareholder. This entity is primarily engaged in the
sale and installation of automotive stereo equipment. During the years ended
August 31, 1995 and 1994, the Company billed certain charges to this entity
amounting to approximately, $20,000 and $34,000, respectively. These charges
consist primarily of usage of the computer system. The computer system usage
arrangement expired in August 1995.
9. Employee Incentive Compensation and Benefit Plans
Stock Incentive Plan
The Company has a Stock Incentive Plan (the "Plan"), which was adopted by
the Board of Directors in 1993, for the benefit of officers and key employees
of the Company. The Plan, as amended, authorized the issuance of incentive
stock options covering up to 550,000 shares of common stock exercisable at
prices equal to the fair market value of the stock on the date of grant.
Options generally vest ratably over five years, at the discretion of the
Compensation Committee of the Board of Directors.
The following is a summary of non-qualified stock options activity under
the plan for the years ended August 31, 1996, 1995 and 1994:
Number
of Shares Price Range
------------- ----------------
Balance at August 31, 1993 41,760 $6.88 - $6.88
Granted 202,500 8.25 - 13.25
Exercised 0 N/A
Cancelled (14,388) 6.88 - 7.75
------------- ----------------
Balance at August 31, 1994 229,872 6.88 - 13.25
Granted 122,500 10.13 - 12.00
Exercised (8,000) 6.88 - 9.00
Cancelled (28,000) 9.00 - 12.13
------------- ----------------
Balance at August 31, 1995 316,372 6.88 - 13.25
Granted 96,000 2.06 - 2.88
Exercised 0 N/A
Cancelled (160,115) 6.25 - 13.25
------------- ----------------
Balance at August 31, 1996 252,257 $2.06 -$13.25
============= ================
At August 31, 1996, vested options for 66,807 shares were exercisable at
prices ranging from $2.06 to $12.00 per share and 254,743 shares were
available for additional option grants.
In 1993, 35,000 restricted shares, which vest ratably over five years, were
issued in accordance with this Plan. During 1996, the restricted shares
became fully vested when the compensation committee waived the respective
vesting requirements. Compensation expense of $67,500, $74,250 and $47,250
relating to the restricted shares was recorded during the fiscal years ended
August 31, 1996, 1995 and 1994, respectively.
401(k) Savings Plan
The Company has adopted a 401(k) Savings Plan for the benefit of
substantially all employees. The Plan provides for both employee and employer
contributions. The Company matches 25% of the employee's contribution limited
to 1.0% of the employee's annual compensation subject to limitations set
annually by the Internal Revenue Service. The Company's contributions were
approximately $69,000 and $45,000 for the years ended August 31, 1996 and
1995, respectively.
10. Pro Forma Information (Unaudited)
Pro Forma Adjustments
The pro forma adjustments related to the change in accounting principle
assume application of the straight-line method of warranty revenue recognition
retroactive to September 1, 1992. The pro forma adjustment related to the
change in accounting principle in 1994 reduced net income as reported by
$421,865. The effect of the change in accounting principle in 1995 was to
decrease net income by approximately $860,000 ($0.15 per share).
11. Other Matters:
Treasury Stock
In conjunction with the repayment of the note to former shareholder, the
Company cancelled 410,714 shares of the treasury stock in 1994 which were
being used as collateral for the note.
Private Label Credit Card Agreement
The Company has an agreement whereby an independent credit card bank has
agreed to provide financing to qualified customers of the Company under the
Company's "Campo" store private label credit card program. The agreement
provides for a financing line of up to $125 million and the Company earns
promotional and other fees as a part of this agreement.
12. Contingent Liabilities:
In the normal course of business, the Company is involved in various legal
proceedings. Based upon the Company's evaluation of the information presently
available, management believes that the ultimate resolution of any such
proceedings will not have a material adverse effect on the Company's financial
position, liquidity or results of operation.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report:
1. Financial Statements
The Company's financial statements listed below have been filed
as part of this report:
Page
----
Report of Independent Accountants.......................... 27
Balance Sheets as of August 31, 1996 and 1995.............. 28
Statements of Operations for the Years Ended
August 31, 1996, 1995 and 1994........................... 29
Statements of Shareholders' Equity for the Years
Ended August 31, 1996, 1995 and 1994..................... 30
Statements of Cash Flows for the Years Ended
August 31, 1996, 1995 and 1994........................... 31
Notes to Financial Statements.............................. 32
2. Financial Statement Schedules
All schedules have been omitted because they are not applicable
or not required, or the information appears in the financial
statements or notes thereto.
3. Exhibits
3.1 Amended and Restated Articles of Incorporation of the
Company(1), as amended by Articles of Amendment dated January
3, 1995.(2)
3.2 By-laws of the Company,(1) as amended by Amendment No. 2 to the
By-laws adopted October 30, 1995.(3)
10.1 Master Lease of 2201 S. Claiborne Avenue, 110 Terry Parkway and
800 Distributors Row dated as of August 1, 1991 by and between
Anthony J. Campo and Giant TC, Inc., as terminated with respect
to Terry Parkway by Partial Termination of Master Lease dated
as of December 30, 1992 by and between Anthony J. Campo and
Giant TC, Inc.(1)
10.2 Lease of 5015 Bloomfield dated March 15, 1977, by and between
Elmwood Development Co. and Campo Appliance Co. of Clearview,
Inc., as amended by Supplemental and Amended Lease Agreement
dated 1977, together with Sublease of 5015 Bloomfield dated as
of August 1, 1991 by and between Campo Appliance Co. of
Clearview, Inc. and Giant TC, Inc.(1)
10.3 Non-Competition Agreement dated September 1, 1991 by and
between Giant TC, Inc. and Anthony J. Campo.(1)
10.4 Personal Services Contract dated September 1, 1991 by and
between Giant TC, Inc. and Anthony J. Campo.(1)
10.5 Amendment and Restatement of Non-Competition Agreement and
Personal Services Contract dated June 29, 1992 by and between
Anthony J. Campo and Giant TC, Inc.(1)
10.6 Services Agreement dated June 29, 1992 by and between Giant TC,
Inc. and Mobile-One Auto Sound, Inc., as amended December 30,
1992.(1)
10.7 Credit Card Program Agreement dated as of May 29, 1992 by and
between Giant TC, Inc. and Monogram Credit Card Bank of
Georgia(1), as amended by Amendment to Credit Card Program
Agreement dated as of May 29, 1992 by and between Monogram
Credit Card Bank of Georgia and Campo Electronics, Appliances
and Computers, Inc. (formerly Giant TC, Inc.), dated October
29, 1993.(4)
10.8 Giant TC, Inc. 1992 Stock Incentive Plan(1), as amended by
Amendment No. 1 to Campo Electronics, Appliances and Computers,
Inc. 1992 Stock Incentive Plan dated October 13, 1993(5), as
amended by Amendment No. 2 to Campo Electronics, Appliances and
Computers, Inc. 1992 Stock Incentive Plan dated May 20,
1994(6), as amended by Amendment No. 3 and the Amended and
Restated Campo Electronics, Appliances and Computers, Inc. 1992
Stock Incentive Plan dated December 7, 1994(2), as amended by
the Second Amended and Restated Campo Electronics, Appliances
and Computers, Inc. 1992 Stock Incentive Compensation Plan
dated January 12, 1996.
10.9 Form of Indemnity Agreement by and between Giant TC, Inc. and
each of Anthony P. Campo, Joseph E. Campo, Barbara Treuting
Casteix, Dr. Mervin Trail, M.D., Rex O. Corley, Jr. and L.
Ronald Forman.(1)
10.10 Employment Agreement dated June 29, 1992 by and between Giant
TC, Inc. and Anthony P. Campo , as amended December 30, 1992(1)
as terminated and replaced by Employment Agreement dated
December 16, 1993 by and between Campo Electronics, Appliances
and Computers, Inc. and Anthony P. Campo(5), as amended by the
Amendment to Employment Agreement dated May 16, 1996.
10.11 Employment Agreement dated June 29, 1992 by and between Giant
TC, Inc. and Donald E. Galloway(1) as terminated and replaced
by Employment Agreement dated December 16, 1993 by and between
Campo Electronics, Appliances and Computers, Inc. and Donald E.
Galloway(5), as amended by the Amendment to Employment
Agreement dated May 16, 1996, as terminated by letter agreement
dated July 12, 1996.
10.12 Acquisition and Interim Servicing Agreement dated November 22,
1993 by and between Monogram Credit Card Bank of Georgia Item
14 and Campo Electronics, Appliances and Computers, Inc.(4)
10.13 Loan Agreement dated August 30, 1995 by and between Hibernia
National Bank and Campo Electronics, Appliances and Computers,
Inc.(7), as amended by the First Amendment to Loan Agreement as
of August 30, 1995 by and between Hibernia National Bank and
Campo Electronics, Appliances and Computers, Inc.(3), as
amended by the Second Amendment to Loan Agreement dated May 31,
1996 by and between Hibernia National Bank and Campo
Electronics, Appliances and Computers, Inc.(8), as amended by
the Third Amendment to Loan Agreement dated December 1, 1996 by
and between Hibernia National Bank and Campo Electronics,
Appliances and Computers, Inc.*
10.14 Loan Agreement dated August 30, 1995 by and between Met Life
Capital Corporation and Campo Electronics, Appliances and
Computers, Inc.(7)
10.15 Sale Agreement dated August 30, 1995 by and between Federal
Warranty Service Corporation and Campo Electronics, Appliances
and Computers, Inc.(7)
10.16 Change of Control Agreement dated as of August 29, 1996 by and
between Campo Electronics, Appliances and Computers, Inc. and
Anthony P. Campo.
10.17 Campo Electronics, Appliances and Computers, Inc. Severance Pay
Plan dated as of August 29, 1996.
23 Consent of Coopers & Lybrand L.L.P.*
27 Financial Data Schedule*
__________
* Filed herewith. All other exhibits have been previously filed.
(1)Incorporated by reference from the Company's Registration Statement on Form
S-1 (Registration No. 33-56796) filed with the Commission on January 6,
1993.
(2)Incorporated by reference from the Company's Quarterly Report on Form 10-Q
for the fiscal quarter ended February 28, 1995.
(3)Incorporated by reference from the Company's Quarterly Report on Form 10-Q
for the fiscal quarter ended May 31, 1995.
(4)Incorporated by reference from the Company's Annual Report on Form 10-K for
the fiscal year ended August 31, 1993.
(5)Incorporated by reference from the Company's Registration Statement on Form
S-1 (Registration No. 33-76184) filed with the Commission on March 8, 1994.
(6)Incorporated by reference from the Company's Annual Report on Form 10-K for
the fiscal year ended August 31, 1994.
(7)Incorporated by reference from the Company's Annual Report on Form 10-K for
the fiscal year ended August 31, 1995.
(8)Incorporated by reference from the Company's Quarterly Report on Form 10-Q
for the fiscal quarter ended May 31, 1996.
(b) Reports on Form 8-K
There were no reports on Form 8-K filed during the three month
period ended August 31, 1996.
(c) Exhibits
All exhibits required by Item 601 of Regulation S-K have been
filed.
(d) Financial Statement Schedules
All schedules have been omitted because they are not applicable or
not required, or the information appears in the financial
statements or notes thereto.
SIGNATURE
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Amendment to be
signed on its behalf by the undersigned, thereunto duly authorized.
CAMPO ELECTRONICS, APPLIANCES AND
COMPUTERS, INC
Dated: December 13, 1996 By: /s/ WAYNE J. USIE
_______________________________
Wayne J. Usie
Chief Financial Officer and
Secretary
EXHIBIT INDEX
-------------
Exhibit Page
No. Description No.
3.1 Amended and Restated Articles of Incorporation of the
Company(1), as amended by Articles of Amendment dated January
3, 1995.(2)
3.2 By-laws of the Company,(1) as amended by Amendment No. 2 to the
By-laws adopted October 30, 1995.(3)
10.1 Master Lease of 2201 S. Claiborne Avenue, 110 Terry Parkway and
800 Distributors Row dated as of August 1, 1991 by and between
Anthony J. Campo and Giant TC, Inc., as terminated with respect
to Terry Parkway by Partial Termination of Master Lease dated
as of December 30, 1992 by and between Anthony J. Campo and
Giant TC, Inc.(1)
10.2 Lease of 5015 Bloomfield dated March 15, 1977, by and between
Elmwood Development Co. and Campo Appliance Co. of Clearview,
Inc., as amended by Supplemental and Amended Lease Agreement
dated 1977, together with Sublease of 5015 Bloomfield dated as
of August 1, 1991 by and between Campo Appliance Co. of
Clearview, Inc. and Giant TC, Inc.(1)
10.3 Non-Competition Agreement dated September 1, 1991 by and
between Giant TC, Inc. and Anthony J. Campo.(1)
10.4 Personal Services Contract dated September 1, 1991 by and
between Giant TC, Inc. and Anthony J. Campo.(1)
10.5 Amendment and Restatement of Non-Competition Agreement and
Personal Services Contract dated June 29, 1992 by and between
Anthony J. Campo and Giant TC, Inc.(1)
10.6 Services Agreement dated June 29, 1992 by and between Giant TC,
Inc. and Mobile-One Auto Sound, Inc., as amended December 30,
1992.(1)
10.7 Credit Card Program Agreement dated as of May 29, 1992 by and
between Giant TC, Inc. and Monogram Credit Card Bank of
Georgia(1), as amended by Amendment to Credit Card Program
Agreement dated as of May 29, 1992 by and between Monogram
Credit Card Bank of Georgia and Campo Electronics, Appliances
and Computers, Inc. (formerly Giant TC, Inc.), dated October
29, 1993.(4)
10.8 Giant TC, Inc. 1992 Stock Incentive Plan(1), as amended by
Amendment No. 1 to Campo Electronics, Appliances and Computers,
Inc. 1992 Stock Incentive Plan dated October 13, 1993(5), as
amended by Amendment No. 2 to Campo Electronics, Appliances and
Computers, Inc. 1992 Stock Incentive Plan dated May 20,
1994(6), as amended by Amendment No. 3 and the Amended and
Restated Campo Electronics, Appliances and Computers, Inc. 1992
Stock Incentive Plan dated December 7, 1994(2), as amended by
the Second Amended and Restated Campo Electronics, Appliances
and Computers, Inc. 1992 Stock Incentive Compensation Plan
dated January 12, 1996.
10.9 Form of Indemnity Agreement by and between Giant TC, Inc. and
each of Anthony P. Campo, Joseph E. Campo, Barbara Treuting
Casteix, Dr. Mervin Trail, M.D., Rex O. Corley, Jr. and L.
Ronald Forman.(1)
10.10 Employment Agreement dated June 29, 1992 by and between Giant
TC, Inc. and Anthony P. Campo , as amended December 30, 1992(1)
as terminated and replaced by Employment Agreement dated
December 16, 1993 by and between Campo Electronics, Appliances
and Computers, Inc. and Anthony P. Campo(5), as amended by the
Amendment to Employment Agreement dated May 16, 1996.
10.11 Employment Agreement dated June 29, 1992 by and between Giant
TC, Inc. and Donald E. Galloway(1) as terminated and replaced
by Employment Agreement dated December 16, 1993 by and between
Campo Electronics, Appliances and Computers, Inc. and Donald E.
Galloway(5), as amended by the Amendment to Employment
Agreement dated May 16, 1996, as terminated by letter agreement
dated July 12, 1996.
10.12 Acquisition and Interim Servicing Agreement dated November 22,
1993 by and between Monogram Credit Card Bank of Georgia Item
14 and Campo Electronics, Appliances and Computers, Inc.(4)
10.13 Loan Agreement dated August 30, 1995 by and between Hibernia
National Bank and Campo Electronics, Appliances and Computers,
Inc.(7), as amended by the First Amendment to Loan Agreement as
of August 30, 1995 by and between Hibernia National Bank and
Campo Electronics, Appliances and Computers, Inc.(3), as
amended by the Second Amendment to Loan Agreement dated May 31,
1996 by and between Hibernia National Bank and Campo
Electronics, Appliances and Computers, Inc.(8), as amended by
the Third Amendment to Loan Agreement dated December 1, 1996 by
and between Hibernia National Bank and Campo Electronics,
Appliances and Computers, Inc.*
10.14 Loan Agreement dated August 30, 1995 by and between Met Life
Capital Corporation and Campo Electronics, Appliances and
Computers, Inc.(7)
10.15 Sale Agreement dated August 30, 1995 by and between Federal
Warranty Service Corporation and Campo Electronics, Appliances
and Computers, Inc.(7)
10.16 Change of Control Agreement dated as of August 29, 1996 by and
between Campo Electronics, Appliances and Computers, Inc. and
Anthony P. Campo.
10.17 Campo Electronics, Appliances and Computers, Inc. Severance Pay
Plan dated as of August 29, 1996.
23 Consent of Coopers & Lybrand L.L.P.*
27 Financial Data Schedule*
__________
* Filed herewith. All other exhibits have been previously filed.
(1)Incorporated by reference from the Company's Registration Statement on Form
S-1 (Registration No. 33-56796) filed with the Commission on January 6,
1993.
(2)Incorporated by reference from the Company's Quarterly Report on Form 10-Q
for the fiscal quarter ended February 28, 1995.
(3)Incorporated by reference from the Company's Quarterly Report on Form 10-Q
for the fiscal quarter ended May 31, 1995.
(4)Incorporated by reference from the Company's Annual Report on Form 10-K for
the fiscal year ended August 31, 1993.
(5)Incorporated by reference from the Company's Registration Statement on Form
S-1 (Registration No. 33-76184) filed with the Commission on March 8, 1994.
(6)Incorporated by reference from the Company's Annual Report on Form 10-K for
the fiscal year ended August 31, 1994.
(7)Incorporated by reference from the Company's Annual Report on Form 10-K for
the fiscal year ended August 31, 1995.
(8)Incorporated by reference from the Company's Quarterly Report on Form 10-Q
for the fiscal quarter ended May 31, 1996.
</TABLE>
EXHIBIT 10.13
THIRD AMENDMENT TO LOAN AGREEMENT
(and Modification of Notes)
This Third Amendment to Loan Agreement (this "Third Amendment") is
executed as of December 1, 1996, by and among Campo Electronics, Appliances
and Computers, Inc. (the "Borrower") and Hibernia National Bank, as agent
for the Banks (in such capacity, the "Agent"), and Central Bank, Hibernia
National Bank and Liberty Bank & Trust Company of Tulsa, N.A. (the
"Banks").
RECITALS
A. The Borrower and the Banks entered into that certain Loan
Agreement dated as of August 30, 1995 (the "Loan Agreement"), pursuant to
which the Banks extended to Borrower a term loan in the principal amount of
$17,000,000 and a line of credit in the maximum aggregate principal amount
of $10,000,000 (collectively, the "Loan").
B. The Borrower has requested that the Banks (i) waive the
Borrower's non-compliance with certain financial covenants imposed on the
Borrower by the Loan Agreement for the fiscal year ended August 31, 1996
and for each subsequent month end through and including November 30, 1996,
and (ii) suspend the effectiveness of all of the financial covenants
imposed on the Borrower by the Loan Agreement for the period from December
1, 1996 through September 1, 1997.
C. The Banks are willing to grant the Borrower's requests upon the
Borrower's agreement (i) to shorten the maturity date of the Loan to
September 1, 1997, (ii) to grant certain additional collateral, (iii) to
add certain financial covenants in place of the suspended financial
covenants, (iv) to make certain other modifications, and (v) to pay a
waiver fee.
D. Capitalized terms not otherwise defined herein shall have the
meanings set forth in the Loan Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and
undertakings contained herein, the parties hereto amend the Loan Agreement
as follows:
AGREEMENT
1. Section 2.01 (Term Loan) of the Loan Agreement is hereby amended
to change the maturity date of the term loan from August 31, 1998 to
September 1, 1997. Each of the term notes is hereby modified to change
their maturity date from August 31, 1998 to September 1, 1997.
2. Section 2.02(a) (Line of Credit) of the Loan Agreement is hereby
amended to read as follows:
Section 2.02 Line of Credit. (a) Subject to and upon the
terms and conditions contained in this Agreement, and relying on the
representations and warranties contained in this Agreement, each Bank
severally (in the proportions of 29.6296% for Central Bank, 37.0370%
for Hibernia National Bank and 33.3333% for Liberty Bank) agree to
make line of credit Advances to the Borrower from time to time on any
Business Day in such amounts as the Borrower may request up to the
aggregate principal amount of (i) $10,000,000 at any one time
outstanding through and including December 31, 1996 and (ii)
$5,000,000 at any one time outstanding from January 1, 1997 through
maturity on September 1, 1997. The line of credit Advances shall be
represented by promissory notes of the Borrower in the principal
amounts set forth below:
Bank Principal Amount
---- ----------------
Central Bank $2,962,963.00
Hibernia National Bank 3,703,704.00
Liberty Bank & Trust Company of Tulsa, N.A. 3,333,333.00
Interest on the line of credit notes shall accrue at the rate
described in Section 2.03 hereof and shall be payable in arrears on
the first day of each month following the execution of the line of
credit notes. Principal on the line of credit notes shall be payable
at maturity on September 1, 1997.
Each of the line of credit notes is hereby modified to change their
maturity date from August 31, 1998 to September 1, 1997, and to change the
face amounts thereof to $5,000,000 on January 1, 1997.
3. Section 2.03(e) (Interest Rate; Fees - Commitment Fee) of the
Loan Agreement is hereby amended to read as follows:
(e) Commitment Fee. On the first day of each December, March,
June and September, beginning March 1, 1997, the Borrower shall pay a
commitment fee on the line of credit to the Agent (to be shared pro
rata among the Banks) in an amount equal to (i) 0.125% per annum of
the difference between $10,000,000 (through December 31, 1996) or
$5,000,000 (beginning January 1, 1997) and the average aggregate
amounts outstanding on the line of credit during the preceding fiscal
quarter; and (ii) 1% per annum of the average aggregate amounts
outstanding on the line of credit during said preceding fiscal
quarter.
4. Section 2.09 (Security) of the Loan Agreement is hereby amended
to read as follows:
Section 2.09 Security. (a) The Loan shall be secured by a
first priority mortgage or deed of trust on nine (9) properties owned
by the Borrower and located as follows:
Birmingham, Alabama
Dothan, Alabama
Mobile, Alabama
Baton Rouge, Louisiana
Harahan, Louisiana (two properties)
Monroe, Louisiana
Shreveport, Louisiana
Chattanooga, Tennessee
The foregoing are all of the real estate properties currently owned
by the Borrower. All other of Borrower's remaining stores are leased
from unaffiliated third parties. At the request of the Lender, the
Borrower shall execute such other instruments, including amendments
or supplements to the existing mortgages and deeds of trust to
further evidence the foregoing.
(b) The Loan shall be further secured by a first priority
security interest in all new and used inventory of the Borrower, now
owned or hereafter acquired, wherever located, bearing the trademarks
or trade names set forth on Schedule 1 hereto. In the event that the
Borrower acquires new product lines on open account (not subject to
floor plan financing) having inventory values in excess of $25,000,
the Borrower shall promptly notify the Agent thereof and execute
supplements to the Collateral Documents to permit the Banks to obtain
first perfected security interests therein.
(c) The Loan shall be further secured by a first priority
security interest in all of the Borrower's rights to or claims for
income tax refund monies due and/or to become due from the Internal
Revenue Service and all state taxing authorities, including, without
limitation, income tax refund monies resulting from applications for
carryback adjustments for loss years. In the event that the Borrower
receives a tax refund prior to December 31, 1996, the Borrower shall
immediately notify the Agent of such receipt, in which case the
$10,000,000 maximum aggregate amount of the line of credit shall be
reduced by the amount of the tax refund received. Furthermore, in
the event that the maximum amount outstanding on the line of credit
is $5,000,000 or less as of January 1, 1997, the Lender agrees to
release its security interest in the tax refund upon request of the
Borrower. Furthermore, the Lender agrees not to perfect its security
interest in the tax refund by filing a UCC-1 Financing Statement
prior to January 1, 1997 unless a Default occurs under the Loan
Agreement.
5. Section 4.02 (Financial Statements and Reports) of the Loan
Agreement shall amended to read as follows:
(e) Monthly Reports of Borrower - as soon as available and in
any event within 25 days after the end of each month, (i) the
unaudited balance sheet of the Borrower as at the end of such month,
the unaudited statement of profit and loss of the Borrower for such
month and the unaudited statement of cash flow of the Borrower for
such month, setting forth in each case in comparative form the
corresponding figures for the corresponding period of the preceding
fiscal year, together with a certificate showing the calculation of
all financial covenants for such month and quarter to date, in each
case certified correct by both the Chief Executive Officer of the
Borrower and either the President or Chief Financial Officer of the
Borrower, and (ii) an inventory report relating to the inventory that
is collateral for the Loan as of the last day of such month.
6. The effectiveness of the provisions of Section 4.03(a) through
4.03(g) (Financial Covenants) of the Loan Agreement shall be suspended
during the period from December 1, 1996 through September 1, 1997.
However, Section 4.03 (Financial Covenants) of the Loan Agreement shall be
amended to add two additional financial covenants, which financial
covenants shall be effective beginning December 1, 1996, to read as
follows:
(h) Minimum Working Capital. The Borrower shall maintain working
capital (defined as current assets less current liabilities,
excluding the term loan) of not less than $10,000,000 as of
December 31, 1996 and $7,000,000 as of the end of each
subsequent month.
(i) Minimum EBITDA. The Borrower shall maintain earnings before
interest, income taxes, depreciation and amortization (exclusive
of any write-offs associated with any store closures) of not
less than the following:
Quarterly Period Ending Minimum EBITDA
----------------------- --------------
February 28, 1997 $2,326,499
May 31, 1997 794,402
August 31, 1997 2,282,582
7. Section 4.04 (Certificates of Compliance) of the Loan Agreement
is hereby amended to require that the compliance certificates be executed
by both the Chief Executive Officer and either the President or Chief
Financial Officer of the Borrower.
8. Section 4.05 (Taxes and Other Liens) of the Loan Agreement is
hereby amended to exclude therefrom the requirement that the Borrower pay
all ad valorem property taxes on its leased stores.
9. Section 5.01 (Debts, Guaranties and Other Obligations) of the
Loan Agreement is hereby amended to add a new clause (i) to read as
follows:
(i) Debt to refinance a portion of the term loan in accordance
with the release provisions in Section 5.05(b) of this Agreement.
10. Section 5.02 (Liens) of the Loan Agreement is hereby amended to
add a new clause (g) to read as follows:
(g) Liens on leased stores to secure Debt permitted by Section
5.01(i) hereof.
11. Section 7.01(e) Events of Default) of the Loan Agreement is
hereby amended to read as follows:
(e) Other Debt to Other Lenders. The Borrower defaults in the
payment of any amounts due to any Person (other than the Banks) or in
the observance or performance of any of the covenants or agreements
contained in any credit agreements, notes, equipment leases,
collateral or other documents (excluding store leases) relating to
any Debt of the Borrower to any Person (other than the Banks) in
excess of $250,000 and such Debt has been accelerated or otherwise
become due and payable.
12. Section 7.03 (Sharing of Set-Offs) of the Loan Agreement is
hereby amended so that the term "Default" as used therein shall mean only a
Default in the payment of principal and interest on the Loan when due;
thus, the Banks shall not be able to exercise contractual or statutory
rights of set-off unless the Borrower fails to make a payment of principal
or interest when due.
13. The Borrower hereby reaffirms all the representations and
warranties contained in Article 3 of the Loan Agreement and certifies that
all such representations and warranties are true and correct as of the date
of this Third Amendment, except that the Borrower acknowledges that it is
not currently in compliance with all of the provisions of its financing
agreements with Whirlpool Financial Corporation. The Borrower will
promptly obtain all waivers or modifications necessary to cure any such
non-compliance and provide the Agent with copies thereof.
14. The Borrower further certifies that no Default (other than as
relates to the financial covenants set forth in Section 4.03 of the Loan
Agreement and certain provisions of its financing agreements with Whirlpool
Financial Corporation) has occurred and is continuing under the Loan
Agreement as of the date of this Third Amendment.
15. The Borrower hereby specifically reaffirms the mortgage, pledge,
assignment, security agreement and other hypothecation of all collateral as
security for the Loan, including, without limitation, the following:
Mortgage by the Borrower in favor of the Agent dated
August 30, 1995, covering certain immovable property
of the Borrower located in Jefferson County, Alabama.
Mortgage by the Borrower in favor of the Agent dated
August 30, 1995, covering certain immovable property
of the Borrower located in Houston County, Alabama.
Mortgage by the Borrower in favor of the Agent dated
August 30, 1995, covering certain immovable property
of the Borrower located in Mobile County, Alabama.
Mortgage by the Borrower in favor of the Agent dated
August 30, 1995, covering certain immovable property
of the Borrower located in East Baton Rouge Parish,
Louisiana.
Mortgage by the Borrower in favor of the Agent dated
August 30, 1995, covering certain immovable property
of the Borrower located in Jefferson Parish,
Louisiana.
Mortgage by the Borrower in favor of the Agent dated
August 30, 1995, covering certain immovable property
of the Borrower located in Ouachita Parish,
Louisiana.
Mortgage by the Borrower in favor of the Agent dated
August 30, 1995, covering certain immovable property
of the Borrower located in Caddo Parish, Louisiana.
Deed of Trust by the Borrower in favor of the Agent
dated August 30, 1995, covering certain immovable
property of the Borrower located in Hamilton County,
Tennessee.
Security Agreement (Inventory and Proceeds) by the
Borrower in favor of the Agent dated December 4,
1996, covering certain inventory and proceeds.
Security Agreement (Tax Refund) by the Borrower in
favor of the Agent dated December 4, 1996, covering
certain federal and state tax refunds.
The Borrower acknowledges and agrees that the Borrower may, from time to
time, one or more times, enter into additional mortgages, pledges,
assignments, security agreements and other hypothecations with the Banks
under which the Borrower may mortgage, pledge, assign, grant a security
interest in and hypothecate the same collateral. The Borrower further
acknowledges and agrees that the execution of such additional agreements
will not have the effect of cancelling, novating or otherwise modifying
said agreements, it being the Borrower's intent that all such agreements
shall be cumulative in nature and shall each and all remain in full force
and effect until expressly cancelled by the Banks under written
cancellation instrument delivered to the Borrower.
16. Except as modified and amended hereby, the Loan Agreement shall
remain in full force and effect.
17. The effectiveness of this Third Amendment shall be conditioned
upon the satisfaction of the following conditions:
a. Third Amendment. The Borrower and all of the Banks shall
have executed this Third Amendment.
b. Resolutions. The Borrower shall have adopted corporate
resolutions regarding the authorization of execution of this Third
Amendment and all documents related thereto, certified correct by the
secretary or assistant secretary of the Borrower.
c. Fees. The Banks shall have received a waiver fee in the
amount of $18,500 to be shared equally among the Banks.
d. Security Agreements. The Agent shall have received the
security agreements referred to in Paragraph 10 of this Third Amendment.
18. Borrower further hereby and forever settles, compromises,
transacts, satisfies, waives, releases, acquits, discharges, surrenders and
cancels any and all Claims (as defined hereinafter) against the Banks,
their predecessors, insurers or insureds, subrogors or subrogees, assignors
or assignees, nominees, representatives, joint venturers, directors,
officers, agents, employees, attorneys, shareholders, principals, parent
companies, subsidiary companies, other affiliates, and any other person or
entity which has or might have derivative, secondary or vicarious liability
for their acts or omissions whose rights are derived from them (all of such
released parties being collectively referred to as the "Released Parties"),
it being hereby specifically agreed and understood that this Third
Amendment constitutes a compromise of rights and claims and the execution
of this Third Amendment is not to be construed as an acknowledgment or
admission of any fact of any liability or responsibility by the Banks, and
the Banks hereby expressly deny any liability to the Borrower. For the
purpose of this Third Amendment, "Claims" shall mean (i) any and all
claims, demands, losses, damages, causes of action, and rights of action
whatsoever, liquidated or unliquidated, choate or inchoate, matured or
unmatured, contingent or exigible, asserted or unasserted, direct or
indirect, known or unknown, anticipated or unanticipated, arising before or
on the date of the Borrower's execution hereof whether based upon tort,
negligence, intentional conduct, contract, equity, bankruptcy, indemnity,
contribution, reimbursement, unjust enrichment, and/or any other legal
theory, which any party may be entitled to in any way, and (ii) arising out
of or relating to the Loan and the loan and security documentation from
time to time executed in connection therewith, but (iii) excluding any
Claims (as defined in preceding clauses (i) and (ii)) against the Released
Parties based upon fraudulent or dishonest acts of the Banks, and Claims to
require the Released Parties to perform any contractual undertakings under
the loan and security documentation relating to the Loan.
19. This Third Amendment may be executed in two or more
counterparts, and it shall not be necessary that the signatures of all
parties hereto be contained on any one counterpart hereof; each counterpart
shall be deemed an original, but all of which together shall constitute one
and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be duly executed as of the date first above written.
BORROWER: CAMPO ELECTRONICS, APPLIANCES AND
COMPUTERS, INC.
By: /s/ Anthony P. Campo
____________________________________
Name: Anthony P. Campo
Title: Chairman and Chief
Executive Officer
AGENT: HIBERNIA NATIONAL BANK
By: /s/ Douglas Staley
____________________________________
Name: Douglas Staley
Title: Senior Vice President
BANKS: CENTRAL BANK
By: /s/ Fenton M. Davison
____________________________________
Name: Fenton M. Davison
Title: Senior Vice President
Percent: 29.6296%
HIBERNIA NATIONAL BANK
By: /s/ Douglas Staley
____________________________________
Name: Douglas Staley
Title: Senior Vice President
Percent: 37.0370%
LIBERTY BANK & TRUST COMPANY OF TULSA, N.A.
By: /s/ Gary C. King
____________________________________
Name: Gary C. King
Title: Asst. Vice President
Percent: 33.3333%
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the Registration Statement of
Campo Electronics, Appliances, and Computers, Inc. on Form S-8 (File No. 33-
56796) of our report dated November 1, 1996, except for Notes 4 and 5 for
which the date is December 6, 1996, on our audits of the financial
statements of Campo Electronics, Appliances, and Computers, Inc. as of
August 31, 1996 and 1995, and for the years ended August 31, 1996, 1995, and
1994, which report is included in this Annual Report on Form 10-K.
/s/ Coopers & Lybrand L.L.P.
COOPERS & LYBRAND L.L.P.
New Orleans, Louisiana
December 16, 1996
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