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