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 II
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
accounting principle ---- (0.6) ----
_____ _____ ____
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.
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 17, 1996 By: /s/ WAYNE J. USIE
_______________________________
Wayne J. Usie
Chief Financial Officer and
Secretary
