UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended November 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______________ to _______________
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 of (I.R.S. Employer Identification No.)
Incorporation or Organization)
109 NORTH PARK BLVD., COVINGTON, LOUISIANA 70433
(Address of Principal Executive Offices) (Zip Code)
(504) 867-5000
Registrant's Telephone Number, Including Area Code
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
-------- --------
At January 10, 1997, there were 5,566,906 shares of common stock, $.10 par
value, outstanding.
CAMPO ELECTRONICS, APPLIANCES AND COMPUTERS, INC.
INDEX
Part I. Financial Information Page
Item 1. Financial Statements 3
Statements of Operations -
Three Months Ended November 30, 1996 and 1995 3
Balance Sheets -
November 30, 1996, August 31, 1996 and November 30, 1995 4
Statements of Cash Flows -
Three Months Ended November 30, 1996 and 1995 5
Notes to Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 7
Part II. Other Information
Item 1. Legal Proceedings 11
Item 6. Exhibits and Reports on Form 8-K 11
Signatures 12
CAMPO ELECTRONICS, APPLIANCES AND COMPUTERS, INC.
STATEMENTS OF OPERATIONS (UNAUDITED)
FOR THE THREE MONTHS ENDED NOVEMBER 30,
1996 1995
Net sales $ 65,762,745 $ 78,955,480
Cost of sales 52,892,913 61,078,404
------------ ------------
Gross profit 12,869,832 17,877,076
Selling, general and administrative
expenses 13,798,856 17,096,894
------------ ------------
Operating income (loss) (929,024) 780,182
Other income (expense):
Interest expense (449,516) (492,849)
Interest income 19,703 35,007
Other income, net 58,739 120,999
------------ ------------
(371,074) (336,843)
Income (loss) before income taxes (1,300,098) 443,339
Income tax expense (benefit) (494,000) 168,000
------------ ------------
Net Income (loss) $ (806,098) $ 275,339
============ ============
Per share data:
Net income (loss) per share $ (0.14) $ .05
============ ============
Weighted average number of common
shares outstanding 5,566,906 5,566,906
============ ============
The accompanying notes are an integral part of these financial statements.
CAMPO ELECTRONICS, APPLIANCES AND COMPUTERS, INC.
BALANCE SHEETS (UNAUDITED)
November 30, August 31, November 30,
1996 1996 1995
ASSETS ---- ---- ----
------
Current assets:
Cash and cash equivalents 4,286,559 $ 3,303,822 $ 4,576,346
Investments in marketable securities
140,288 129,788 162,864
Receivables (net of an allowance of
$2.6 million at November 30, 1996;
$2.9 million at August 31, 1996 and
$2.7 million at November 30, 1995) 17,492,348 14,561,102 20,508,078
Merchandise inventory 72,624,838 56,387,842 82,206,454
Deferred income taxes 2,411,000 3,033,000 4,496,576
Other 576,100 471,399 1,247,623
------------ ------------ ------------
Total current assets 97,531,133 77,886,953 113,197,941
Property and equipment, net 35,957,335 36,376,959 38,850,993
Deferred income taxes 811,000 1,234,000 3,145,734
Intangibles and other 3,464,499 3,535,639 3,618,001
------------ ------------ ------------
$137,763,967 $119,033,551 $158,812,669
============ ============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current liabilities:
Current portion of long-term debt $ 16,213,515 $ 2,478,179 $ 2,591,189
Short-term borrowings - line of credit 9,250,000 ----- 3,500,000
Accounts payable 57,508,716 47,793,786 72,094,555
Accrued expenses 9,198,338 7,169,218 10,891,778
Deferred revenue 4,142,875 4,621,294 6,118,671
------------ ------------ ------------
Total current liabilities 96,313,444 62,062,477 95,196,193
------------ ------------ ------------
Long-term debt, less current portion 4,331,664 18,191,371 19,930,909
Deferred revenue 3,789,041 4,650,296 7,931,916
------------ ------------ ------------
8,120,705 22,841,667 27,862,825
------------ ------------ ------------
Commitments and contingencies
Shareholders' equity:
Preferred stock, 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 November 30, 1996
and 1995 and August 31, 1996 556,691 556,691 556,691
Paid-in capital 32,373,306 32,373,306 32,373,306
Retained earnings 582,750 1,388,849 3,052,248
Less: Unearned compensation ----- ----- (59,063)
Unrealized loss on marketable
securities available for sale (182,929) (189,439) (169,531)
------------ ------------ ------------
Total shareholders' equity 33,329,818 34,129,407 35,753,651
------------ ------------ ------------
$137,763,967 $119,033,551 $158,812,669
============ ============ ============
The accompanying notes are an integral part of these financial statements.
CAMPO ELECTRONICS, APPLIANCES AND COMPUTERS, INC.
STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE THREE MONTHS ENDED NOVEMBER 30,
1996 1995
Cash flow from operating activities:
Net income (loss) $ (806,098) $ 275,339
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Depreciation and amortization 1,079,062 1,720,082
Deferred income taxes 1,041,010 -----
Stock awards ----- 8,437
Provision for uncollectible receivables 298,626 66,350
Loss on disposal of assets 51,051 -----
(Increase) decrease in assets:
Receivables (3,229,871) (1,170,753)
Merchandise inventory (16,236,996) (21,948,047)
Other current assets (130,965) (120,007)
Increase (decrease) in liabilities:
Accounts payable 9,714,930 17,790,787
Accrued expenses 2,029,119 3,672,273
Deferred revenue (1,339,674) (1,914,677)
------------ ------------
Net cash used in operating activities (7,529,806) (1,620,216)
------------ ------------
Cash flow from investing activities:
Purchase of property and equipment (670,463) (237,693)
Decrease in other assets 57,377 23,722
------------ ------------
Net cash used in investing activities (613,086) (213,971)
------------ ------------
Cash flow from financing activities:
Decrease in long-term debt (124,371) (194,787)
Borrowings under line of credit 17,050,000 21,300,000
Repayments under line of credit (7,800,000) (17,800,000)
------------ ------------
Net cash provided by financing activities 9,125,629 3,305,213
------------ ------------
Net increase in cash and cash equivalents 982,737 1,471,026
Cash and cash equivalents at beginning of
period 3,303,822 3,105,320
------------ ------------
Cash and cash equivalents at end of period $ 4,286,559 $ 4,576,346
============ ============
Cash paid during the period for:
Interest expense $ 386,955 $ 190,550
============ ============
Income taxes $ 26,000 $ 69,220
============ ============
Supplemental schedule of noncash investing
and financial activities:
Assets acquired under capital lease $ 275,368 -----
============ ============
The accompanying notes are an integral part of these financial statements.
CAMPO ELECTRONICS, APPLIANCES AND COMPUTERS, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
(1) Basis of Presentation
The information for the three months ended November 30, 1996 and 1995 is
unaudited, but in the opinion of management, reflects all adjustments, which
are of a normal recurring nature, necessary for a fair presentation of
financial position and results of operations for the interim periods. The
accompanying financial statements should be read in conjunction with the
financial statements and notes thereto contained in the Company's Annual
Report on Form 10-K for the fiscal year ended August 31, 1996.
The results of operations for the three months ended November 30, 1996
are not necessarily indicative of the results to be expected for the full
fiscal year ending August 31, 1997.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General Overview
The Company experienced comparable store sales declines of 15.9% during
the quarter ended November 30, 1996 as compared to the same period last year,
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 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 had a negative impact on the
Company's gross profit margins. Another factor causing the Company's margins
to decline during the quarter ended November 30, 1996 was a change in vendor
incentives, with vendors generally offering lower levels of rebates. In
addition to the softness of consumer demand and lower levels of vendor
rebates, the Company has also experienced a continued shift in product sales
to the personal computer and home office categories, which are lower margin
items.
As previously disclosed, 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 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 during the first
quarter of fiscal 1997 that a comprehensive review of the Company's operations
was appropriate. During the first quarter, management began a comprehensive
study of the Company's operations to determine measures that are most likely
to achieve an improvement in the performance of the Company.
This process is expected to take several months to complete, and no
recommendations have been developed thus far. 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 the overall plan is not yet complete, management has determined to
close two of the Company's under performing stores during the second quarter
of fiscal 1997, and the possibility exists that other significant changes to
the Company's operations could be implemented following this review.
As discussed in "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 facility to September 1, 1997. As a practical
matter, this will require the Company to secure a replacement line of credit
and term loan facility 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 position to obtain the timely
necessary replacement of its debt arrangements.
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:
Three Months Ended
------------------
November 30, November 30,
1996 1995
Net sales 100.0% 100.0%
Cost of sales 80.4 77.4
----- -----
Gross profit 19.6 22.6
Selling, general and administrative expense 21.0 21.7
----- -----
Operating income (loss) (1.4) 0.9
Interest expense (0.6) (0.6)
Interest income 0.0 0.0
Other income, net 0.0 0.2
---- ----
(0.6) (0.4)
---- ----
Income (loss) before income taxes (2.0) 0.5
Income tax expense (benefit) (0.8) 0.2
---- ----
Net income (loss) (1.2)% 0.3%
==== ====
Three Months Ended November 30, 1996 as Compared to Three Months Ended
November 30, 1995
Net sales for the three months ended November 30, 1996 decreased 16.7%
to $65.8 million compared to $79.0 million for the same period in 1995.
Comparable retail store sales for the three months ended November 30, 1996
decreased by 15.9%. The decline in 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.
Extended warranty revenue recognized under the straight-line method
(applicable to those extended warranty contracts sold prior to August 1, 1995)
was $1.7 million and $2.4 million for the quarters ended November 30, 1996 and
1995, respectively. Extended warranty expenses for these same periods were
$1.1 million and $1.5 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 or 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
quarters ended November 30, 1996 and 1995 was $1.9 million and $2.6 million,
respectively, representing a decrease of 28% in total warranty revenue
recognized (both under the straight-line method and from sales to the third
party) from the same period in 1995.
Gross profit for the three months ended November 30, 1996 was $12.9
million or 19.6% of net sales as compared to $17.9 million, or 22.6% of net
sales for the comparable period in the prior year. The gross profit
percentage decrease was primarily driven by a combination of soft demand
affecting the retail industry generally, increased competition (both in number
of competitors and corresponding increased price competition) and a change by
vendors in the type of incentive programs offered, with vendors generally
offering lower levels of rebates. In addition, the Company also experienced a
continued shift in product sales to the personal computer and home office
categories, which are lower margin items.
Selling, general and administrative expenses were $13.8 million or 21.0%
of net sales for the three months ended November 30, 1996 as compared to $17.1
million, or 21.7% of net sales for the comparable period in the prior year.
This percentage decrease was primarily due to increased vendor funding to
offset advertising expenses, as well as an increase as a percentage of sales
in promotional and other fees derived from the Company's private label credit
card program as such fees remained constant in an environment of declining net
sales. The Company also experienced a decrease in the amortization of pre-
opening expenses, due to the fact that no new stores have been opened since
August 1995.
The Company's effective income tax rate was 38.0% and 37.9% for the
three months ended November 30, 1996 and 1995, respectively.
Net loss for the three months ended November 30, 1996 was $806,000 (or
$.14 per share) compared to net income of $275,000 (or $.05 per share) for
the same period in the prior fiscal year. The first quarter loss reflects
the impact of intense competition in a weak retail industry and the other
factors that had a negative impact on gross profits as discussed above. Poor
results from two stores that management has decided to close contributed 38%
of the Company's net loss for the 1996 period.
Liquidity and Capital Resources
Net cash used in operating activities was $7.5 million for the three
months ended November 30, 1996, as compared to cash used in operating
activities of $1.6 million for the three months ended November 30, 1995. The
use of cash in both periods was primarily due to increases in merchandise
inventory and receivables which were not completely offset by the related
increase in accounts payable as the Company prepared for the Christmas selling
season. The increase in cash used for the 1996 period over the 1995 period
was due to the Company's prepayment of borrowings under its floor plan
financing arrangements to take advantage of the more favorable interest rate
under its bank line of credit facility. As of November 30, 1996, the Company
used several "floor plan" finance companies to finance the majority of its
merchandise purchases. The Company has an aggregate borrowing limit with
these finance companies of approximately $105 million and it collateralizes
the outstanding borrowings with merchandise inventory and certain receivables.
Payment terms under these agreements range from 50 to 120 days. In addition,
the Company finances inventory purchases through open-account arrangements
with various vendors. As of November 30, 1996, the Company was not in
compliance with certain of the financial covenants contained in one of its
floor plan financing arrangements, but the Company has secured a waiver of
these covenants from the finance company.
The Company's long-term debt as of November 30, 1996 consisted of two
term loans, one with a financial institution and the other with three banks.
The principal balance of the term loan with the financial institution, which
was $4.1 million at November 30, 1996, accrues interest, payable monthly, at
the average weekly yield of 30 Day Commercial paper plus 1.80% (7.19% at
November 30, 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. Under its terms as of November 30, 1996, the term loan with the
banks accrues interest, payable quarterly, at the Prime Rate, 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. The outstanding principal balance and applicable
interest rate on this term loan as of November 30, 1996 were $15.3 million and
8.25% (the Prime Rate), respectively.
As part of the agreement with the banks, as of November 30, 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 the bank term loan; however,
interest is payable monthly. As of November 30, 1996, the Company had
borrowings of $9.3 million 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 November 30, 1996,
the Company was not in compliance with certain of the covenants contained in
the bank term loan and the 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 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 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 rate
of such facility. In addition, the possibility exists that significant
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 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.
During the three months ended November 30, 1996 and 1995 the Company's
net cash provided by financing activities was $9.1 million and $3.3 million,
respectively. The primary source of cash during these periods was borrowings
under short-term borrowing arrangements.
The Company incurred capital expenditures of $670,000 and $238,000
during the three months ended November 30, 1996 and 1995, respectively,
primarily in connection with equipment purchases and leasehold improvements
funded with short-term borrowings.
In addition to its available line of credit discussed above, the Company
believes that its existing funds 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.
Impact of Inflation
In management's opinion, inflation has not had a material impact on the
Company's financial results for the three months ended November 30, 1996 and
1995. 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.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
There have been no material developments during the three months ended
November 30, 1996.
Item 6. Exhibits and Reports on Form 8-K
(a) 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 Composite By-laws of the Company, as of October 4, 1996.
10.1 Second Amended and Restated Campo Electronics, Appliances and
Computers, Inc. 1992 Stock Incentive Plan dated January 12,
1996(3), as amended by Amendment No. 1 dated October 4, 1996.
27.1 Financial Data Schedule
__________
(1) Incorporated by reference from the Company's Registration
Statement on Form S-1 (Registration No. 33-56796) filed with the
Commisssion 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 Annual Report on
Form 10-K for the fiscal year ended August 31, 1996.
__________
(b) Reports on Form 8-K.
No reports on Form 8-K have been filed during the three months ended
November 30, 1996.
CAMPO ELECTRONICS, APPLIANCES AND COMPUTERS, INC.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CAMPO ELECTRONICS, APPLIANCES AND COMPUTERS, INC.
January 14, 1997 /s/ Anthony P. Campo
-----------------------------------
Anthony P. Campo
Chairman of the Board, Chief Executive Officer,
and Director
/s/ Wayne J. Usie
-----------------------------------
Wayne J. Usie
Chief Financial Officer and Secretary
EXHIBIT INDEX
SEQUENTIALLY
EXHIBIT NO. DESCRIPTION NUMBERED PAGE
- ----------- ----------- -------------
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 Composite By-laws of the Company, as of October
4, 1996.
10.1 Second Amended and Restated Campo Electronics,
Appliances and Computers, Inc. 1992 Stock Incentive
Plan dated January 12, 1996(1), as amended by
Amendment No. 1 dated October 4, 1996.
27.1 Financial Data Schedule
___________
(1) Incorporated by reference from the Company's Registration
Statement on Form S-1 (Registration No. 33-56796) filed with the
Commisssion 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 Annual Report on
Form 10-K for the fiscal year ended August 31, 1996.