- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED JUNE 29, 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 1-11566
----------------
COMPUSA INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 75-2261497
(I.R.S. EMPLOYER
(STATE OR OTHER JURISDICTION OF IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
14951 NORTH DALLAS PARKWAY, DALLAS, TEXAS 75240
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (972) 982-4000
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
------------------- -----------------------------------------
Common Stock, $.01 per share par value New York Stock Exchange
9 1/2% Senior Subordinated Notes Due 2000 New York Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
None
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. [X]
The aggregate market value of the voting stock held by nonaffiliates of the
registrant, based on the closing price of these shares on the New York Stock
Exchange on September 9, 1996, was $1,570,006,120. For the purposes of this
disclosure only, the registrant has assumed that its directors, executive
officers, and beneficial owners of 5% or more of the registrant's common stock
are the affiliates of the registrant.
The registrant had 45,320,525 shares of common stock, $.01 per share par
value, outstanding as of September 9, 1996.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Company's definitive proxy statement for the annual meeting
of stockholders of the Company to be held November 6, 1996 are incorporated by
reference into Part III of this Report.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
TABLE OF CONTENTS
PAGE
----
PART I
Item 1. Business........................................................ 1
Item 2. Properties...................................................... 5
Item 3. Legal Proceedings............................................... 6
Item 4. Submission of Matters to a Vote of Security Holders............. 6
PART II
Item 5. Market for the Company's Common Equity and Related Stockholder
Matters........................................................ 7
Item 6. Selected Financial Data......................................... 8
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.......................................... 9
Item 8. Financial Statements and Supplementary Data..................... 15
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure........................................... 15
PART III
Item 10.Directors and Executive Officers of the Company................. 16
Item 11. Executive Compensation......................................... 16
Item 12. Security Ownership of Certain Beneficial Owners and Management. 16
Item 13. Certain Relationships and Related Transactions................. 16
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form
8-K........................................................... 17
Signatures.............................................................. 20
Index to Consolidated Financial Statements.............................. F-1
PART I
ITEM 1. BUSINESS
CompUSA Inc. ("CompUSA" or the "Company") is the leading retailer of
personal computers and related products and services, principally through its
Computer Superstores(SM) located throughout the United States. Although retail
sales through its Computer Superstores are the largest component of the
Company's business, its stores also fulfill the principal marketing, product,
and service functions of the Company's other businesses, including direct
sales to corporate, government, education, and mail order customers and
training and technical services.
The Company opened its first retail store in April 1985 and its first
Computer Superstore in April 1988. As of September 1, 1996, the Company
operated 106 Computer Superstores in 50 metropolitan areas in 33 states. The
stores average approximately 27,000 square feet and achieved average sales per
square foot in fiscal 1996 of $1,422.
In May 1996, the Company acquired PCs Compleat, Inc. ("PCs Compleat"), a
leading direct reseller of brand-name personal computers and peripherals,
located in Marlborough, Massachusetts. PCs Compleat, a wholly-owned subsidiary
of the Company, operates a centralized facility with integrated telephone,
computer, and distribution systems. The Company believes the acquisition of
PCs Compleat provides a vehicle to more rapidly expand the Company's position
in the personal computer mail order business.
The Company was incorporated in Delaware in 1988 to effect the acquisition
of a company formed in 1984 called Soft Warehouse, Inc. Until March 1991, the
Company operated under the name "Soft Warehouse, Inc." Except where the
context indicates otherwise, all references in this Annual Report to "CompUSA"
or "the Company" include all subsidiaries of CompUSA. The Company's principal
executive offices are located at 14951 North Dallas Parkway, Dallas, Texas
75240, and its telephone number is (972) 982-4000.
MERCHANDISE
The Company offers thousands of personal computer hardware, software,
accessory, and related products as an essential component of its merchandising
strategy. In addition to its in-store selection, which the Company believes is
sufficiently broad to satisfy the needs of most of its customers, CompUSA
offers customers the ability to special order approximately 25,000 additional
products. Although prices for products and services are typically determined
centrally, local personnel regularly compare these centrally determined prices
with those of competitors and managers have the authority to adjust prices in
response to local competitive conditions within guidelines established and
controlled centrally. Additionally, prices for special order items are
established at each store. Major products offered are as follows:
HARDWARE. Hardware products include desktop and laptop model personal
computers, peripherals, such as printers, modems, monitors, data storage
devices, add-on circuit boards, and connectivity products and certain business
machines. Major vendors include Apple, Canon, Compaq, Digital, Epson, Hewlett-
Packard, IBM, Maxtor, NEC, Packard Bell, Sony, Texas Instruments, and Toshiba.
The Company also sells personal computers and related hardware products under
its own Compudyne(R) trademark. The private label Compudyne products are
manufactured exclusively for the Company by third party manufacturers. The
Company has been approached by certain patent owners, including computer
manufacturers, that contend the Company should pay royalties in connection
with the alleged use of certain patented technology in the assembly and sale
of Compudyne personal computers. None of these patent owners has to date
provided sufficient information to the Company to lead it to conclude it has
any such royalty obligations. However, as additional information becomes
available, the Company's assessment of these issues may change.
1
SOFTWARE. The Company sells approximately 1,500 different software packages
in the business and personal productivity, utility, language, multimedia,
education, reference, and entertainment categories. Major vendors include
Broderbund, Claris, Disney Interactive, IBM, Intuit, Lotus, Microsoft,
Netscape, Novell, SoftKey, and Symantec.
ACCESSORIES. Accessories sold by the Company include a broad range of
personal computer related items and supplies such as diskettes, printer
accessories, mice, cables, scanners, CD ROM storage, and furniture. Major
vendors include 3M, Avery, Curtis, Fellowes, Daisytek, Gemini, Globe, Hewlett-
Packard, Iomega, Kensington, Microsoft, O'Sullivan, Sony, U.S. Robotics, and
Western Digital.
DIRECT SALES
The Company believes that its presence in 50 metropolitan areas, broad
product assortment, competitive pricing, customer service, and training and
technical services position it to serve the diverse needs of corporate,
government, education, and mail order customers by offering a "total solution"
to their personal computing needs. CompUSA targets these customers primarily
through direct solicitations, telemarketing sales, and catalogs. Direct sales
are fulfilled by the Company either from the on-hand inventories in its
Computer Superstores or from its central distribution and configuration
facility located in the Dallas/Fort Worth area, consisting of approximately
56,000 square feet of distribution space and 10,000 square feet of
configuration space.
CORPORATE. Each of the Company's stores has a corporate sales group that
solicits potential corporate customers and offers phone ordering, delivery,
business credit, leasing, and other services, including a corporate assistance
window for merchandise pickup and technical assistance. The Company offers
volume purchase and national account agreements to qualified major customers.
The Company's corporate sales group markets overall merchandise selection,
pricing, and service along with classroom training and technical services.
Larger customers are assigned specific account executives who manage the
Company's relationships with these customers. Account managers process the
orders from each location.
GOVERNMENT AND EDUCATION. The government and education sales group markets
to federal, state, and local governments, government related entities, and the
education market, both directly and as a supplier to systems integrators and
other contractors. Approximately 10,000 products from 50 vendors have been
approved by the General Services Administration ("GSA") on the fiscal 1996-
1999 GSA schedule, making such products eligible for purchase by federal
agencies and certain state and local governments. The Company is also an
approved training and service vendor on the GSA schedule.
MAIL ORDER. The Company conducts mail order sales both through its Computer
Superstores and through PCs Compleat, a wholly-owned subsidiary.
Through its Computer Superstores, CompUSA offers mail order customers most
of the products that are carried in its stores and sells such products at
competitive prices. CompUSA maintains a central call center for telephone
orders and fulfills these orders either through its Computer Superstores or
the Company's central distribution and configuration facility. Substantially
all of CompUSA's advertisements, including its color circulars, feature the
Company's toll free mail order telephone number, 1-800-COMPUSA. The Company
advertises major brands of personal computer hardware, software, and supplies,
as well as its full service offerings of training and technical services in
computer journals, airline magazines, catalogs, and many other publications.
PCs Compleat is a leading direct marketer of brand-name personal computers
and peripherals primarily to small and home office users and small to medium
size businesses. Founded in 1992, PCs Compleat is one of the top "super
direct" sources of brand-name personal computer products and services in the
United States. PCs Compleat's mission is to provide its customers with the
broad product selection of a superstore, the value and convenience of a direct
marketer, and superior service. PCs Compleat's operating strategy utilizes a
centralized distribution facility occupying approximately 55,000 square feet
in Marlborough, Massachusetts with integrated, state-of-the-art telephone,
computer, and distribution systems.
2
SERVICES
TRAINING. The Company offers training for customers in each of its
businesses through classroom facilities located in all of its stores. Classes
are offered for a variety of application and advanced technology software. A
Computer Superstore typically has three classrooms, each equipped with a
personal computer for each participant. In total, the Company has over 325
classrooms in its stores. Classrooms can accommodate from eight to 14 students
and each store offers approximately five to six full-day classes in each
classroom per week. The Company's instructors receive periodic training both
from software vendors and from the Company. The Company has also opened four
stand-alone Training Supercenter Plus(SM) locations, with one in each of the
Boston, Dallas, Los Angeles, and Seattle markets. In addition, training can be
provided at a customer's facility or at other off-site locations.
TECHNICAL SERVICES. The Company provides its customers with numerous
technical services. Each store maintains a technical services department, open
during the store's regular business hours, that employs from five to 15
people. In addition, in fiscal 1996, the Company established outbound
technical support and integration service centers in eight markets: Atlanta,
Cleveland, Dallas, Los Angeles, New York, North Los Angeles, San Francisco and
Washington, D.C. to cater to the needs of corporate and government customers.
Services include personal computer systems design, configuration, integration,
and testing, technical advice and repairs, including authorized service under
many manufacturers' warranties, and installation and delivery. The Company
also sells various extended service contracts that are administered and
insured by an independent third party. In addition, hardware customers whose
purchases are still under manufacturers' warranties may call the Company for
technical support at no charge. Technical service is also available by
telephone to the general public on a per-minute fee basis.
PURSHASING, VENDOR SELECTION, AND PRODUCT OBSOLESCENCE
The Company manages the purchase and replenishment of all store merchandise
centrally. The inventory management department makes all purchases and directs
merchandise transportation and transfers between the Company's facilities. The
Company purchases a majority of its merchandise inventory directly from
manufacturers, with additional purchases from distributors. Both manufacturers
and distributors may ship merchandise inventories directly to the Company's
stores, the Company's Dallas/Fort Worth area central distribution and
configuration facility, PCs Compleat's centralized distribution facility in
Marlborough, Massachusetts, or the Company's three regional cross-dock
facilities that consolidate vendor shipments and transfer merchandise to the
stores. Substantially all inventory is held at the Company's stores.
The Company considers numerous factors in vendor selection, including
customer demand, product availability, product performance, price, and credit
terms. The Company believes that its significant purchase volumes generally
allow it to acquire products at or near the lowest prices available. The
Company has maintained long-term relationships with vendors but does not have
material long-term contracts or commitments with any of them. Brand names and
individual products are important to the Company's business. In fiscal 1996,
purchases of products from Hewlett-Packard Company constituted in excess of
10% of the Company's aggregate purchases for the year.
As a retailer of personal computer products, the Company's exposure to
product obsolescence and technological advances is less than that faced by
manufacturers of such products. Substantially all of the Company's major
vendors, either contractually or as a result of the vendor following industry
practices, have reduced the Company's exposure to inventory obsolescence by
providing favorable provisions, including price protection, stock balancing
privileges, and other return privileges, subject to restrictions and
limitations in certain circumstances, and promotional allowances for most
products purchased. The Company further reduces technology and obsolescence
risk through inventory management policies designed to maximize rapid
inventory turnover. In fiscal 1996, the Company turned its inventory 7.7
times.
3
CREDIT
CompUSA extends credit to qualified corporate, government, education, and
mail order customers, generally pursuant to 30 day payment terms. CompUSA
makes available revolving credit payment terms through its own private label
credit card program, which is provided by an independent financial services
company. In addition, the Company accepts most major credit cards, including
Visa, Mastercard, American Express, Diners Club, and Discover Card.
The Company has a third party leasing program pursuant to which the Company
refers corporate customers desiring financing to an independent leasing
company that purchases the applicable equipment and leases it directly to
these customers.
SEASONALITY
Based upon its past operating history, the Company believes that its
business is seasonal. Excluding the effects of new store openings, net sales
and earnings are generally lower during the first and fourth fiscal quarters
than in the second and third fiscal quarters. See Note 14 of Notes to
Consolidated Financial Statements.
PERSONNEL
The Company considers its relationship with its employees to be excellent.
None of the Company's employees are covered by collective bargaining
agreements. At August 31, 1996, the Company employed 8,461 full-time and 2,691
part-time employees.
INDUSTRY AND COMPETITION
The Company believes that sales of personal computers and related products
and services have increased as a result of the following factors: (i) growth
of the service/information-based sector of the economy; (ii) improvements in
personal computer hardware performance and new software applications; (iii)
the emergence of industry standards and component compatibility; (iv)
reductions in prices of hardware and software; (v) increased user familiarity
with personal computers; (vi) the replacement of obsolete hardware, software
and peripherals; (vii) increased consumer awareness created, in part, by the
"information superhighway" and Internet capabilities; and (viii) office
automation and the reengineering of the workplace. The Company also believes
that as higher performance personal computers continue to become available at
even more attractive prices, the market for personal computers and related
products and services should continue to grow.
The personal computer industry is undergoing significant change. Rapid
technological advances, in combination with an increasingly computer literate
population, have increased the use and popularity of personal computers,
resulting in the emergence and growth of a variety of distribution channels.
The Company believes that individuals, businesses, and governments, having
gained familiarity with personal computers, require less assistance in making
their purchasing decisions and have become increasingly price sensitive. At
the same time, intense competition for market share has forced hardware and
accessory manufacturers, along with software vendors, to reduce prices and
seek new channels through which to sell their products. These factors have
resulted in widespread and intense competition among personal computer product
resellers. CompUSA believes that its business strategy positions it well to
compete successfully in this industry.
The Company competes with a large number and variety of resellers of
personal computers and related products and services in various businesses. In
the retail business, the Company primarily competes with other large format
computer retailers, large format consumer electronics and office supply
retailers, national mail order houses, mass merchants, discounters, specialty
electronics retailers, software specialty retailers, and other personal
computer retailers. In the corporate, government, and education businesses,
the Company primarily competes with outbound dealers, manufacturers, value-
added resellers, other large format computer retailers, large format office
supply retailers, and general office equipment retailers. In the mail order
business, the
4
Company competes with national mail order houses, manufacturers and
distributors that sell directly to the public through the use of mail order
catalogs and general trade publications, and other large format computer
retailers. In the training business, the Company primarily competes with
various local, regional, and national chains of training centers and other
large format computer retailers. In the technical services business, the
Company primarily competes with other large format computer retailers,
manufacturers, various other computer retailers, specialty electronics
retailers, and large format consumer electronics and office supply retailers.
The Company believes that the major competitive factors in its businesses
include customer service, breadth and depth of selection, price, technical
support, and marketing and sales capabilities. The Company's utilization of
trained personnel and the ability to use national and local advertising media
are important to the Company's ability to compete in its businesses. The
Company believes it is a strong competitor with respect to each of the factors
referenced above. Given the highly competitive nature of the personal computer
industry, no assurances can be given that the Company will continue to compete
successfully with respect to the factors referenced above. Also, the Company
would be adversely affected if its competitors were to offer their products at
significantly lower prices or if the Company were unable to obtain products in
a timely manner for an extended period of time. Some of the Company's
competitors are larger and/or have substantially greater resources than the
Company.
TRADEMARKS AND SERVICE MARKS
The Company conducts its business under the tradenames "CompUSA" and "PCs
Compleat." The Company has been issued registrations for "CompUSA,"
"Compudyne," "PCs Compleat," and several other marks and has applied in the
United States for registrations for several other trademarks and service
marks. The Company has also applied for registration of various trademarks and
service marks in numerous foreign countries. The Company pursues a program of
procuring and maintaining rights under its trademarks and service marks and
the associated goodwill. All rights with respect to the Company's trademarks
and service marks are fully reserved.
The Company sells products under various trademarks, service marks, and
trade names to which reference is made in this Annual Report that are the
property of owners other than the Company. Such owners have reserved all
rights with respect to their respective trademarks, service marks, and trade
names.
ITEM 2. PROPERTIES
At September 1, 1996, the Company operated 106 Computer Superstores in 50
metropolitan areas in the 33 states listed below.
NUMBER
STATE OF STORES
- ----- ---------
Alaska.................. 1
Arizona................. 3
California.............. 20
Colorado................ 3
Connecticut............. 2
Delaware................ 1
Florida................. 7
Georgia................. 4
Idaho................... 1
Illinois................ 3
Indiana................. 1
Iowa.................... 1
Kansas.................. 1
Louisiana............... 1
Maryland................ 3
Massachusetts........... 3
Michigan................ 3
NUMBER
STATE OF STORES
- ----- ---------
Minnesota............... 2
Missouri................ 1
Nevada.................. 1
New Hampshire........... 1
New Jersey.............. 4
New York................ 6
North Carolina.......... 2
Ohio.................... 6
Oklahoma................ 1
Pennsylvania............ 3
Rhode Island............ 1
Tennessee............... 1
Texas................... 12
Virginia................ 4
Washington.............. 2
Wisconsin............... 1
5
All but one of the Company's stores are leased or subleased by the Company
with lease terms expiring between 1996 and 2016. In most instances, the
Company has renewal options at increased rents. One store is owned by the
Company. The Company's stores range in size from 16,000 to 58,800 square feet
and average approximately 27,000 square feet. The Company's headquarters,
located in Dallas, Texas, occupies approximately 177,000 square feet of leased
space. The initial lease term for the Company's headquarters has approximately
seven years remaining and the Company has renewal options on the lease at
increased rents. The Company also leases space to operate four stand-alone
Training Supercenter Plus locations, averaging approximately 5,200 square
feet. In addition, the Company leases warehouse and office space that
aggregates approximately 262,000 square feet and is subject to leases expiring
at various dates through 2003. See Note 6 of Notes to Consolidated Financial
Statements.
ITEM 3. LEGAL PROCEEDINGS
The Company is a defendant from time to time in lawsuits incidental to its
business. Based on currently available information, the Company believes that
resolution of all known contingencies would not have a material adverse impact
on the Company's financial statements. However, there can be no assurances
that future costs would not be material to results of operations of the
Company for a particular future period. In addition, the Company's estimates
of future costs are subject to change as events evolve and additional
information becomes available during the course of litigation.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company did not submit any matter to a vote of security holders during
the fourth quarter of fiscal 1996.
6
PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
PRICE RANGE OF COMMON STOCK
The Common Stock is listed on the New York Stock Exchange (the "NYSE") under
the symbol "CPU." The following table sets forth the high and low sales price
per share for the Common Stock as reported to the Company by the NYSE for the
periods indicated, as adjusted for the two-for-one stock split declared by the
Company's Board of Directors effective April 8, 1996:
FISCAL YEAR HIGH LOW
----------- ---- ---
1995
First Quarter.......................................... $6 3/4 $3 3/8
Second Quarter......................................... 7 1/4 4 3/4
Third Quarter.......................................... 10 15/16 6 5/8
Fourth Quarter......................................... 16 13/16 8 3/4
1996
First Quarter.......................................... 21 15/16 14 5/8
Second Quarter......................................... 21 15/16 14 7/16
Third Quarter.......................................... 25 1/8 12 7/8
Fourth Quarter......................................... 47 5/8 24
At September 9, 1996, there were 1,356 holders of record of the Common
Stock.
DIVIDEND POLICY
The Company has not paid and has no current plans to pay cash dividends on
the Common Stock. The Company currently intends to retain earnings for use in
the operation and expansion of its business and therefore does not anticipate
paying cash dividends in the foreseeable future. The terms of the Senior
Subordinated Notes limit the Company's ability to pay dividends generally to
50% of cumulative net income since June 17, 1993, plus 100% of the
consideration received from the issuance of capital stock since such date,
less the amount of other restricted payments, as defined. See Note 8 of Notes
to Consolidated Financial Statements. In addition, the terms of the Company's
bank credit agreement prohibit the payment of dividends on the Common Stock.
See Note 7 of Notes to Consolidated Financial Statements.
7
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected consolidated financial and operating
data for the periods from June 27, 1992 through June 29, 1996. As more fully
described in Note 2 of Notes to Consolidated Financial Statements, the Company
acquired PCs Compleat on May 30, 1996 in a merger transaction accounted for
under the pooling of interests method of accounting. Under the pooling of
interests method of accounting, the historical book values of the assets,
liabilities, and stockholders' equity of PCs Compleat, as reported on its
balance sheet, have been carried over onto the consolidated balance sheet of
the Company and no goodwill or other intangible assets were created. In
addition, the Company has restated its consolidated statements of operations
to include the results of operations of PCs Compleat for each of the fiscal
years presented. This information should be read in conjunction with the
Consolidated Financial Statements and related Notes thereto of the Company and
with "Management's Discussion and Analysis of Financial Condition and Results
of Operations," which are included elsewhere in this Annual Report on Form 10-
K.
FISCAL YEAR ENDED
--------------------------------------------------------
JUNE 29, JUNE 24, JUNE 25, JUNE 26, JUNE 27,
1996(1) 1995 1994 1993 1992
---------- ---------- ---------- ---------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA AND SELECTED
OPERATING DATA)
INCOME STATEMENT DATA: ----------
Net sales............... $3,829,786 $2,935,901 $2,219,457 $1,369,749 $822,815
Cost of sales and
occupancy costs........ 3,311,682 2,573,945 1,955,183 1,189,675 716,531
---------- ---------- ---------- ---------- --------
Gross profit............ 518,104 361,956 264,274 180,074 106,284
Store operating
expenses............... 328,344 263,654 208,356 123,516 71,026
Pre-opening expenses.... 5,466 2,454 7,266 6,111 2,010
General and
administrative
expenses............... 75,488 54,940 47,963 31,466 22,897
Transaction costs
related to Merger (2).. 3,453 -- -- -- --
Restructuring costs (3). -- -- 9,918 -- --
---------- ---------- ---------- ---------- --------
Operating income (loss). 105,353 40,908 (9,229) 18,981 10,351
Interest expense........ 12,487 12,015 12,156 2,256 2,669
Other income, net (4)... (6,983) (2,409) (2,063) (468) (358)
---------- ---------- ---------- ---------- --------
Income (loss) before
income taxes........... 99,849 31,302 (19,322) 17,193 8,040
Income tax expense
(benefit).............. 40,184 6,963 (2,298) 7,510 415
---------- ---------- ---------- ---------- --------
Net income (loss)....... $ 59,665 $ 24,339 $ (17,024) $ 9,683 $ 7,625
========== ========== ========== ========== ========
Income (loss) applicable
to Common Stock (5).... $ 59,665 $ 24,339 $ (17,024) $ 9,683 $ 5,999
========== ========== ========== ========== ========
Income (loss) per common
and common equivalent
share (6).............. $ 1.31 $ 0.60 $ (0.44) $ 0.25 $ 0.23
========== ========== ========== ========== ========
Weighted average number
of shares
outstanding(6)......... 45,610 40,868 38,535 38,291 25,881
SELECTED OPERATING DATA:
Stores open at end of
period................. 105 85 76 48 28
Average net sales per
gross square foot (7).. $ 1,422 $ 1,336 $ 1,268 $ 1,458 $ 1,452
Total gross square
footage at end of
period................. 2,850,000 2,254,500 1,965,200 1,197,600 680,700
Percentage increase in
comparable store
sales (8).............. 12.6% 10.3% 9.0% 20.8% 13.3%
BALANCE SHEET DATA:
Working capital......... $ 305,899 $ 190,128 $ 210,018 $ 216,205 $ 59,655
Total assets............ 909,337 641,329 522,501 449,399 211,550
Long-term debt,
excluding current
portion................ 115,066 115,153 153,292 115,716 3,383
Stockholders' equity.... 325,905 186,704 160,372 163,869 86,072
- --------
Notes on following page
8
(1) The Company's fiscal year is a 52/53 week year ending on the last Saturday
of each June. The Company's fiscal year ended June 29, 1996 contained
fifty-three weeks. The fiscal years ended June 24, 1995, June 25, 1994,
June 26, 1993, and June 27, 1992 contained fifty-two weeks.
(2) For a discussion of the Company's acquisition of PCs Compleat, see Note 2
of Notes to Consolidated Financial Statements.
(3) For a discussion of the Company's restructuring charge, see Note 9 of
Notes to Consolidated Financial Statements.
(4) Fiscal 1992 includes an extraordinary loss of $233,000 from early
extinguishment of debt.
(5) Income (loss) applicable to Common Stock represents the portion of the
Company's income (loss) applicable to common stockholders. Such amount for
fiscal 1992 was calculated by adjusting net income (loss) for the
accretion and dividend requirements of certain redeemable securities. All
such accretion and dividend requirements terminated with the completion of
the Company's public offering in December 1991.
(6) All references in this table to the number of shares and income per common
and common equivalent share amounts have been adjusted on a retroactive
basis to reflect the two-for-one stock split declared by the Company's
Board of Directors effective April 8, 1996 and the Company's acquisition
of PCs Compleat.
(7) Calculated using net sales divided by gross square footage of stores open
at the end of period, weighted by the number of months open during the
period. Net sales for this calculation consist of combined retail and
direct sales generated from the Company's retail stores. Net sales for
this calculation exclude mail order sales generated by PCs Compleat and,
until the beginning of the fourth quarter of fiscal 1993, exclude the mail
order sales of the Company's former wholly-owned subsidiary Compudyne
Direct, Inc. Beginning with the fourth quarter of fiscal 1993, mail order
sales by the Company (excluding PCs Compleat) have been fulfilled by the
Company's retail stores and are included in the stores' net sales. See
"Management's Discussion and Analysis of Financial Condition and Results
of Operations--General." Average net sales per gross square foot for the
fiscal year ended June 29, 1996 has been calculated on the basis of a
fifty-two week fiscal year.
(8) Comparable store sales are net sales for stores open the same months in
both the indicated and the previous period, including stores that were
relocated or expanded during either period. Comparable store sales for the
fiscal year ended June 29, 1996 has been calculated based on sales for the
fifty-three weeks then ended compared to the fifty-three weeks ended July
1, 1995.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
CAUTIONARY STATEMENT REGARDING RISKS AND UNCERTAINTIES THAT MAY AFFECT FUTURE
RESULTS
This Annual Report on Form 10-K contains forward-looking statements about
the business, financial condition and prospects of the Company. The actual
results of the Company could differ materially from those indicated by the
forward-looking statements because of various risks and uncertainties,
including without limitation changes in product demand, the availability of
products, changes in competition, the ability of the Company to open new
stores in accordance with its plans, economic conditions, real estate market
fluctuations, interest rate fluctuations, dependence on manufacturers' product
development, various inventory risks due to changes in market conditions,
changes in tax and other governmental rules and regulations applicable to the
Company, and other risks indicated in the Company's filings with the
Securities and Exchange Commission. These risks and uncertainties are beyond
the ability of the Company to control, and in many cases, the Company cannot
predict the risks and uncertainties that could cause its actual results to
differ materially from those indicated by the forward-looking statements. When
used in this Annual Report on Form 10-K, the words "believes," "estimates,"
"plans," "expects," and "anticipates" and similar expressions as they relate
to the Company or its management are intended to identify forward-looking
statements.
GENERAL
Fiscal 1995 was a transition year for CompUSA, characterized by a reduction
in store growth that allowed the Company to apply its resources to improving
the Company's operations. The Company believes it has
9
substantially completed the transition phase of its fiscal 1995 business plan
and, in fiscal 1996, the Company focused on the execution and growth of its
businesses.
All references herein to "fiscal 1996" relate to the fifty-three weeks ended
June 29, 1996, and references to "fiscal 1995" and "fiscal 1994" relate to the
fifty-two weeks ended June 24, 1995 and June 25, 1994, respectively.
The following table sets forth certain operating data for the Company:
FISCAL YEAR
----------------------
1996 1995 1994
------ ------ ------
Stores open at end of year.............................. 105 85 76
Stores opened during the year........................... 20 9 28
Stores relocated during the year........................ 1 2 1
Average net sales per gross square foot (1)............. $1,422 $1,336 $1,268
Comparable store sales increase (2)..................... 12.6% 10.3% 9.0%
- --------
(1) Calculated using net sales divided by gross square footage of stores open
at the end of the period, weighted by the number of months open during the
period. Average net sales per gross square foot for fiscal 1996 has been
calculated on the basis of a fifty-two week fiscal year.
(2) Comparable store sales are net sales for stores open the same months in
both the indicated and previous period, including stores that were
relocated or expanded during either period. The comparable store sales
increase for fiscal 1996 has been calculated by comparing net sales for
the fifty-three weeks ended June 29, 1996 with net sales for the fifty-
three weeks ended July 1, 1995.
Average net sales per gross square foot increased during fiscal 1996 compared
with fiscal 1995 primarily due to the maturation of the Company's existing
store base and increased growth in the Company's direct sales, mail order, and
service businesses. Service businesses include customer training and technical
services. Mature stores typically have higher net sales per gross square foot
than new stores. Average net sales per gross square foot increased during
fiscal 1995, compared with fiscal 1994, primarily due to increased customer
demand, the maturation of the Company's store base, and changes associated with
the implementation of the fiscal 1995 business plan.
In certain instances, the Company has opened additional Computer Superstores
in existing markets, which has resulted in the diversion of sales from existing
stores and thus some reductions in the rate of comparable store sales growth.
CompUSA has opened additional stores in existing markets largely to increase
market penetration and to provide customers with more convenience and better
service. The Company plans to continue its strategy of opening additional
Computer Superstores in existing markets. The resulting diversion of sales from
existing stores may adversely affect the Company's comparable store sales.
However, the Company believes that this strategy should increase its awareness
with local consumers, enhance its competitive position in such markets and
create efficiencies in advertising and management, and therefore is in the
Company's long-term best interest.
10
RESULTS OF OPERATIONS
As a result of the expansion of the Company's store base, period-to-period
comparisons of financial results may not be meaningful and the results of
operations for historical periods may not be indicative of the results to be
expected in future periods. In addition, the Company expects that its quarterly
results of operations will fluctuate depending on the timing of the opening of,
and the amount of net sales contributed by, new stores and the timing of costs
associated with the selection, leasing, construction, and opening of new
stores, as well as seasonal factors, product introductions, and changes in
product mix. See "--Quarterly Data and Seasonality." The following table sets
forth certain items expressed as a percentage of net sales for the periods
indicated:
FISCAL YEAR
-------------------
1996 1995 1994
----- ----- -----
Net sales................................................. 100.0% 100.0% 100.0%
Cost of sales and occupancy costs......................... 86.5 87.7 88.1
----- ----- -----
Gross profit.............................................. 13.5 12.3 11.9
Store operating expenses.................................. 8.6 9.0 9.4
Pre-opening expenses...................................... 0.1 -- 0.3
General and administrative expenses....................... 2.0 1.9 2.2
Transaction costs related to Merger (1)................... 0.1 -- --
Restructuring costs....................................... -- -- 0.4
----- ----- -----
Operating income (loss)................................... 2.7 1.4 (0.4)
Interest expense and other income, net.................... 0.1 0.3 0.5
----- ----- -----
Income (loss) before income taxes......................... 2.6 1.1 (0.9)
Income tax expense (benefit).............................. 1.0 0.3 (0.1)
----- ----- -----
Net income (loss)......................................... 1.6% 0.8% (0.8)%
===== ===== =====
- --------
(1) For a discussion of the Company's acquisition of PCs Compleat, see Note 2
of Notes to Consolidated Financial Statements.
Fiscal 1996 compared with Fiscal 1995
Net sales for fiscal 1996 increased 30% to $3.83 billion from $2.94 billion
for fiscal 1995. The increase in net sales was due to the additional sales
volume attributable to the new stores opened during and subsequent to fiscal
1995 and an increase in comparable store sales of 12.6%. Comparable store sales
are net sales for stores open the same months in both the indicated and
previous period, including stores that were relocated or expanded during either
period. The Company believes the increase in comparable store sales was
primarily due to the maturation of the Company's store base, increased customer
demand that was attributable to several factors, one of which was the
introduction of Microsoft's Windows(R) 95 operating system, and increased
growth in the Company's direct sales, mail order, and service businesses.
Gross profit was $518 million, or 13.5% of net sales, in fiscal 1996,
compared with $362 million, or 12.3% of net sales, in fiscal 1995. The increase
in gross profit as a percentage of net sales was primarily due to higher
product margin, an improvement in controllable costs such as inventory
shrinkage and freight, leveraging of occupancy costs due to higher average
sales per store, and an increase in the ratio of service revenues to total
revenues. Service revenues typically have higher gross margins than merchandise
sales.
Store operating expenses were $328 million, or 8.6% of net sales, in fiscal
1996, compared with $264 million, or 9.0% of net sales, in fiscal 1995. The
decrease in store operating expenses as a percentage of net sales was primarily
due to the leveraging of fixed store costs and lower net advertising expense
resulting from increased vendor participation. These decreases were partially
offset by higher personnel expenses related to the increase in service
revenues. Although service revenues generally have higher gross margins than
merchandise sales, the related store operating expenses are higher than those
related to merchandise sales.
11
Pre-opening expenses consist primarily of personnel expenses incurred prior
to a store's opening and promotional costs associated with the opening. The
Company's policy is to expense all pre-opening expenses in the month of the
store's grand opening. In fiscal 1996, the Company incurred $5.5 million in
pre-opening expenses in connection with the opening of 20 new stores, the
relocation of one store, and the opening of two Training Supercenter Plus
locations, compared with $2.5 million in pre-opening expenses incurred in
fiscal 1995 in connection with the opening of nine new stores, two Training
Supercenter Plus locations, and the relocation of two stores. The Company
incurred average pre-opening expenses of $260,000 per store for the 20 new
stores opened during fiscal 1996 and $240,000 per store for the nine new stores
opened during fiscal 1995.
General and administrative expenses of $75.5 million, or 2.0% of net sales,
for fiscal 1996 increased as a percentage of net sales, compared with $54.9
million, or 1.9% of net sales, for fiscal 1995. The increase in general and
administrative expenses as a percentage of net sales was primarily due to
charges of approximately $2.0 million for professional fees and related costs
in the third quarter of fiscal 1996 regarding the Company's acquisition review
of Tandy Corporation's Computer City division. Discussions relating to such
possible acquisition were terminated in February 1996. Excluding the $2.0
million of fees and costs related to such possible purchase, general and
administrative expenses aggregated approximately 1.9% of net sales in fiscal
1996. Increases in general and administrative expenses in fiscal 1996 related
to increased incentive compensation were offset by the leveraging of personnel
expenses over higher sales.
Interest expense and other income, net, was $5.5 million in fiscal 1996,
compared with $9.6 million in fiscal 1995. The decrease is attributable to
increased other income related to higher investment levels during fiscal 1996.
See "--Liquidity and Capital Resources."
The Company's effective tax rate for fiscal 1996 was 40%, compared with an
effective tax rate of 22% for fiscal 1995. The effective tax rate differed in
fiscal 1996 from the federal statutory rate primarily due to state income taxes
and nondeductible transaction costs related to the Company's acquisition of PCs
Compleat, offset in part by the benefits from tax exempt interest income earned
by the Company. The fiscal 1995 effective tax rate differed from the federal
statutory rate primarily due to the recognition of the previously unrecognized
tax benefit associated with the fiscal 1994 loss.
As a result of the above, net income for fiscal 1996 was $59.7 million, or
$1.31 per share, compared with net income of $24.3 million, or $0.60 per share,
for fiscal 1995.
Fiscal 1995 compared with Fiscal 1994
Prior to fiscal 1995, the Company had been rapidly expanding its store base,
opening 28 Computer Superstores in fiscal 1994 and 20 Computer Superstores in
fiscal 1993, which represented 58% and 71% unit growth, respectively. With
several changes in senior management beginning in the second quarter of fiscal
1994, the Company adjusted its strategy from a high growth, decentralized
approach to a more controlled growth, centralized approach. In addition, the
Company developed a business plan for fiscal 1995 that redirected the Company's
focus from rapid store growth to improving operations, controlling and reducing
expenses, and reorienting the Company's corporate culture to emphasize
profitability. To enable the Company to apply its resources toward
implementation of the fiscal 1995 business plan, the Company reduced its store
expansion to nine Computer Superstores in fiscal 1995.
Net sales for fiscal 1995 increased 32% to $2.94 billion from $2.22 billion
in fiscal 1994. The increase in net sales was due to both additional sales
volume attributable to the new stores opened during fiscal 1994 and fiscal 1995
and an increase in comparable store sales of 10.3% for fiscal 1995. The Company
believes the increase in comparable store sales was due primarily to increased
customer demand, maturation of the Company's existing store base, and changes
associated with the implementation of the fiscal 1995 business plan.
12
Gross profit was $362 million, or 12.3% of net sales, for fiscal 1995,
compared with $264 million, or 11.9% of net sales, in fiscal 1994. The
increase in gross profit as a percentage of net sales was positively affected
by reduced inventory shrinkage and by changes in the Company's sales mix.
Although the Company's inventory shrinkage has historically been and continues
to be below retail industry averages, as a part of the fiscal 1995 business
plan, the Company placed increased emphasis on reducing inventory shrinkage by
implementing certain loss prevention measures, including new security
procedures and additional employee training. In fiscal 1995, the Company's
retail and mail order sales constituted a greater proportion of total sales as
compared with the sales mix in fiscal 1994. Retail and mail order sales
typically have higher gross margins than direct sales.
Store operating expenses were $264 million, or 9.0% of net sales, for fiscal
1995, compared with $208 million, or 9.4% of net sales, in fiscal 1994. The
decline in store operating expenses as a percentage of net sales was primarily
due to a decrease in advertising expenses as a percentage of net sales, offset
in part by an increase in the blended discount rate charged by third-party
credit card providers. Advertising expenses were lower as a percentage of net
sales in fiscal 1995 due to multi-market advertising efficiencies and
increased vendor participation. During the second quarter of fiscal 1994, the
Company began accepting the American Express Card as a form of payment in its
stores, and in the first quarter of fiscal 1995, the Company began offering,
from time to time, a six month, zero percent interest financing program to
holders of the Company's private label credit card, which is provided by an
independent financial services company. Both the American Express Card and the
six month, zero percent interest financing program have higher discount rates
than the Company's other credit cards and financing programs.
In fiscal 1995, the Company incurred $2.5 million in pre-opening expenses in
connection with the opening of nine stores and the relocation of two stores,
compared with $7.3 million in pre-opening expenses incurred in fiscal 1994 in
connection with the opening of 28 stores and the relocation of one store. For
new stores opened, the Company incurred average pre-opening expense of
$240,000 per store in fiscal 1995, compared with $252,000 per store in fiscal
1994. The reduction in pre-opening expenses per store resulted from cost
reduction measures and other improvements realized through implementation of
the fiscal 1995 business plan.
General and administrative expenses were $54.9 million, or 1.9% of net
sales, for fiscal 1995, compared with $48.0 million, or 2.2% of net sales, in
fiscal 1994. This decrease as a percentage of net sales was primarily due to
economies of scale and cost reduction measures associated with the fiscal 1995
business plan.
Interest expense and other income, net, of $9.6 million in fiscal 1995
remained relatively constant, compared with $10.1 million in fiscal 1994.
The Company's effective tax rate for fiscal 1995 was 22%, compared with an
effective tax rate of 12% in fiscal 1994. The effective tax rate differs in
fiscal 1995 from the federal statutory tax rate primarily due to the
recognition of the previously unrecognized tax benefit associated with the
prior year's loss.
As a result of the above, net income for fiscal 1995 was $24.3 million, or
$0.60 per share, compared with a net loss of $17.0 million, or $.44 per share,
in fiscal 1994.
QUARTERLY DATA AND SEASONALITY
The Company expects that its quarterly results of operations will fluctuate
depending on the timing of the opening of, and the amount of net sales
contributed by, new stores and the timing of costs associated with the
selection, leasing, construction, and opening of new stores, as well as
seasonal factors, product introductions, and changes in product mix.
Based upon its past operating history, the Company believes that its
business is seasonal. Excluding the effects of new store openings, net sales
and earnings are generally lower during the first and fourth fiscal quarters
than in the second and third fiscal quarters. See Note 14 of Notes to
Consolidated Financial Statements.
13
LIQUIDITY AND CAPITAL RESOURCES
In September 1995, the Company completed a public offering, selling
4,025,000 newly-issued shares of Common Stock and receiving net proceeds of
approximately $76.8 million (net of offering costs of approximately $3.5
million).
In December 1995, the Company repurchased 236,200 shares of Common Stock, to
be held as treasury stock, at a weighted average of $14.89 per share,
excluding transaction costs. In February 1996, the Company made a cash
contribution to its 401(k) plan to effect the Company's required contribution
to the plan for 1995, which the plan used to purchase 46,470 shares of
treasury stock from the Company.
At June 29, 1996, total assets were $909 million, $770 million of which were
current assets, including $208 million of cash and cash equivalents. Net cash
provided by operating activities for fiscal 1996 was $87.7 million, compared
with net cash provided by operating activities of $135.6 million for fiscal
1995. Net cash provided by operating activities for fiscal 1995 was positively
affected by the accounts payable to inventory ratio rising to 91% at June 24,
1995, compared with 57% at June 25, 1994. This improvement was due, in part,
to the Company's inventory turnover rate improving to 8.1 inventory turns for
fiscal 1995, compared with an inventory turnover rate of 6.7 inventory turns
for fiscal 1994.
Approximately three-fourths of the Company's net sales during both fiscal
1996 and fiscal 1995 were sales for which the Company received payment at the
time of sale either in cash, by check, or by third-party credit card. The
remaining net sales were primarily sales for which the Company provided credit
terms to corporate, government, and education customers.
Capital expenditures during fiscal 1996 were $47.4 million, $15.5 million of
which were for fiscal 1996 new stores, compared with $30.1 million of capital
expenditures during fiscal 1995, $8.8 million of which were for fiscal 1995
new stores. During fiscal 1996, the Company opened 20 new Computer
Superstores. Excluding the effects of new store openings, the Company's
greatest short-term capital requirements occur during the second fiscal
quarter to support a higher level of sales in that quarter. Short-term capital
requirements are satisfied primarily by available cash and cash equivalents
and vendor and bank financing.
The Company has an unsecured $75 million credit agreement (the "Credit
Agreement") with a consortium of banks that expires in June 1999. At June 29,
1996, no amounts were outstanding under the Credit Agreement and the Company
had approximately $74.4 million available for future borrowings after
reduction for outstanding letters of credit. The Company also finances certain
fixture and equipment acquisitions through equipment lessors. Lease financing
is available from numerous sources and the Company evaluates equipment leasing
as a supplemental source of financing on a continuing basis.
The Company believes that its available cash and cash equivalents, funds
generated by operations, currently available vendor and floor plan financing,
lease financing, and funds available under the Credit Agreement should be
sufficient to finance its continuing operations and expansion plans through
the end of fiscal 1997 and to make all required payments of interest on the
Senior Subordinated Notes. The level of future expansion will be contingent
upon the availability of additional capital.
INFLATION
While inflation has not had, and the Company does not expect it to have, a
material impact upon operating results, there can be no assurances that the
Company's business will not be affected by inflation in the future.
14
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Index to Consolidated Financial Statements on page F-1. Supplementary
quarterly financial information for the Company is included in Note 14 of Notes
to Consolidated Financial Statements.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
15
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The information concerning the directors of the Company is set forth in the
Proxy Statement (the "Proxy Statement") to be sent to stockholders in
connection with the Company's Annual Meeting of Stockholders to be held
November 6, 1996, under the heading "Proposal No. 1--Election of Directors,"
which information is incorporated herein by reference. Information concerning
each executive officer of the Company is set forth in the Proxy Statement
under the heading "MANAGEMENT--Executive Officers," which information is
incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information concerning executive compensation is set forth in the Proxy
Statement under the heading "EXECUTIVE COMPENSATION," which information is
incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information concerning security ownership of certain beneficial owners
and management is set forth in the Proxy Statement under the heading
"PRINCIPAL STOCKHOLDERS AND MANAGEMENT OWNERSHIP," which information is
incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
16
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this Annual Report on Form
10-K.
1. Consolidated Financial Statements:
See Index to Consolidated Financial Statements on page F-1.
2. Exhibits:
2.1 Agreement and Plan of Merger, dated as of May 15, 1996, by and among
the Company, Snowstorm Merger Corp., a Delaware corporation and a
wholly-owned subsidiary of the Company, and PCs Compleat, pursuant
to which the Company acquired PCs Compleat (the "Plan of Merger").
(9)
3.1 Restated and Amended Certificate of Incorporation. (7)
3.2 Restated and Amended Bylaws. (5)
4.1 Specimen Common Stock Certificate (as amended). (7)
4.2 Specimen 9 1/2% Senior Subordinated Note Due 2000. (4)
4.3 Indenture dated June 17, 1993 among CompUSA Inc., as Issuer,
Compudyne Products, Inc., Compudyne Direct, Inc., CompFinance Inc.,
CompService Inc., as Guarantors, and U.S. Trust Company of Texas,
N.A., as Trustee, relating to 9 1/2% Senior Subordinated Notes Due
2000. (2)
4.4 First Supplemental Indenture dated as of December 1, 1995 among the
Company, CompTeam Inc., CompFinance Inc., CompService Inc., and U.S.
Trust Company of Texas, N.A., asTrustee. (8)
4.5 Second Supplemental Indenture dated as of February 7, 1996 among the
Company, CompTeam Inc., CompFinance Inc., CompService Inc., CompUSA
Holdings II Inc., and U.S. Trust Company of Texas, N.A., as Trustee.
(13)
4.6 Third Supplemental Indenture dated as of May 14, 1996 among the
Company, CompFinance Inc., CompService Inc., CompTeam Inc., CompUSA
Holdings II Inc., Snowstorm Merger Corp. and U.S. Trust Company of
Texas, N.A., as Trustee. (13)
4.7 Fourth Supplemental Indenture dated as of May 30, 1996 among the
Company, CompFinance Inc., CompService Inc., CompTeam Inc., CompUSA
Holdings II Inc., PCs Compleat, Inc. and U.S. Trust Company of
Texas, N.A., as Trustee. (13)
4.8 Form of Fifth Supplemental Indenture dated as of June 14, 1996 among
the Company, CompFinance Inc., CompService Inc., CompTeam Inc.,
CompUSA Holdings II Inc., PCs Compleat, Inc., CompUSA Holdings I
Inc., CompUSA Management Company, CompUSA Stores L.P., CompUSA
Holdings Company and U.S. Trust Company of Texas, N.A., as Trustee.
(13)
4.9 Subsidiary Guarantees executed by CompTeam Inc., CompUSA Holdings II
Inc., PCs Compleat, Inc., CompUSA Holdings I Inc., CompUSA
Management Company, CompUSA Stores L.P. and CompUSA Holdings
Company. (13)
4.10 Rights Agreement dated April 29, 1994, between the Company and Bank
One, Texas, N.A., as Rights Agent. (5)
4.11 Letter of the Company dated November 1, 1995, appointing First
Interstate Bank of Texas, N.A., as substitute Rights Agent under the
Rights Agreement. (7)
4.12 Letter of the Company dated August 16, 1996, appointing American
Stock Transfer & Trust Company as substitute Rights Agent under the
Rights Agreement. (13)
10.1 CompUSA Inc. Long-Term Incentive Plan (formerly CompUSA Inc. 1990
Stock OptionPlan). (7)
10.2 $75,000,000 Credit Agreement dated June 16, 1995, among the Company,
certain lenders and NationsBank of Texas, N.A., as Administrative
Lender. (6)
10.3 First Amendment to the Credit Agreement dated as of December 21,
1995 among the Company, certain lenders and NationsBank of Texas,
N.A., as Administrative Lender. (9)
17
10.4 Promissory Note dated June 16, 1995, in the principal amount of
$20,000,000 issued in favor of NationsBank of Texas, N.A. (6)
10.5 Promissory Note dated June 16, 1995, in the principal amount of
$15,000,000 issued in favor of First Interstate Bank of Texas, N.A.
(6)
10.6 Promissory Note dated June 16, 1995, in the principal amount of
$15,000,000 issued in favor of United States Bank of Oregon. (6)
10.7 Promissory Note dated June 16, 1995, in the principal amount of
$12,500,000 issued in favor of Wells Fargo Bank. (6)
10.8 Promissory Note dated June 16, 1995, in the principal amount of
$12,500,000 issued in favor of Bank One, Texas, N.A. (6)
10.9 Subsidiary Guaranty dated June 16, 1995, made by CompFinance Inc.
and CompService Inc. (6)
10.10 Agreements and Adoptions of Subsidiary Guaranty executed by CompTeam
Inc., CompUSA Holdings II Inc., PCs Compleat, Inc., CompUSA Holdings
I Inc., CompUSA Management Company, CompUSA Stores L.P., and CompUSA
Holdings Company. (13)
10.11 Subordination Agreement dated June 16, 1995, among CompFinance Inc.,
CompService Inc., NationsBank of Texas, N.A. and certain lenders.
(6)
10.12 Agreements and Adoptions of Subordination Agreement executed by
CompTeam Inc., CompUSA Holdings II Inc., PCs Compleat, Inc., CompUSA
Holdings I Inc., CompUSA Management Company, CompUSA Stores L.P.,
and CompUSA Holdings Company. (13)
10.13 The Addison Office Lease Agreement dated September 1, 1992, between
Carter-Crowley Properties, Inc. as Landlord and CompUSA Inc. as
Tenant. (3)
10.14 CompUSA Inc. 1996 Change in Control Termination Plan. (8)
10.15 Form of Employment Agreement dated as of May 1, 1996, as amended,
between the Company and each of J. Samuel Crowley, Ronald J.
Gilmore, Melvin D. McCall, Lawrence N. Mondry, Paul Poyfair, James
E. Skinner and Mark R. Walker. (13)
10.16 Form of Employment Agreement dated as of May 1, 1996, as amended,
between the Company and each of Anthony J. Cincotta, Aka A. DeMesa,
Paul F. Ewert, Robyn Gatch-Priest, Harold D. Greenberg, James L.
Infinger, Barry C. McCook, Jack A. Phelps, Ronald D. Strongwater and
Anthony A. Weiss. (13)
10.17 Form of Employment Agreement dated as of May 27, 1996, between the
Company and J. Robert Gary. (13)
10.18 Form of Employment Agreement between the Company and each of Gordon
B. Hoffstein and Jack Littman-Quinn. (13)
10.19 Form of Employment Agreement dated as of July 9, 1996, between the
Company and each of Rick L. Fountain and Leslie C. Marshall. (13)
10.20 Form of Employment Agreement dated as of August 16, 1996, between
the Company and James F. Halpin. (13)
10.21 Form of Employment Agreement dated as of August 16, 1996, between
the Company and Harold F. Compton. (13)
10.22 CompSavings Plan for Employees of CompUSA Inc. (10)
10.23 CompUSA Inc. Deferred Compensation Plan (11)
10.24 PCs Compleat, Inc. 1991 Stock Option Plan (12)
11 Computations of Income per Common and Common Equivalent Share. (13)
21 List of the Company's Subsidiaries. (13)
23 Consent of Ernst & Young LLP. (13)
(b) Reports on Form 8-K.
1. Report on Form 8-K filed with the Securities and Exchange Commission
(the "SEC") on May 20, 1996, disclosing that the Company had entered
into the Plan of Merger pursuant to which it agreed to acquire PCs
Compleat, subject to regulatory approval and customary closing
conditions.
18
- --------
(1) Previously filed as an exhibit to Registration Statement No. 33-52236 on
Form S-1 and incorporated herein by reference.
(2) Previously filed as an exhibit to Registration Statement No. 33-62884 on
Form S-3 and incorporated herein by reference.
(3) Previously filed as an exhibit to the Company's Annual Report on Form 10-
K, as amended, for the fiscal year ended June 27, 1992 and incorporated
herein by reference.
(4) Previously filed as an exhibit to the Company's Annual Report on Form 10-K
for the fiscal year ended June 26, 1993 and incorporated herein by
reference.
(5) Previously filed as an exhibit to the Company's Quarterly Report on Form
10-Q for the fiscal quarter ended March 26, 1994 and incorporated herein
by reference.
(6) Previously filed as an exhibit to the Company's Annual Report on Form 10-K
for the fiscal year ended June 24, 1995 and incorporated herein by
reference.
(7) Previously filed as an exhibit to the Company's Quarterly Report on Form
10-Q for the fiscal quarter ended December 23, 1995 and incorporated
herein by reference.
(8) Previously filed as an exhibit to the Company's Quarterly Report on Form
10-Q for the fiscal quarter ended March 23, 1996 and incorporated herein
by reference.
(9) Previously filed as an exhibit to the Company's Report on Form 8-K filed
with the SEC on June 14, 1996, as amended by Form 8-K/A filed with the SEC
on August 2, 1996.
(10) Previously filed as an exhibit to Registration Statement No. 33-86314 on
Form S-8 and incorporated herein by reference.
(11) Previously filed as an exhibit to Registration Statement No. 33-99280 on
Form S-8 and incorporated herein by reference.
(12) Previously filed as an exhibit to Registration Statement No. 333-06235 on
Form S-8 and incorporated herein by reference.
(13) Filed herewith.
19
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) 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.
CompUSA Inc.
SIGNATURES TITLE DATE
---------- ----- ----
/s/ James F. Halpin President and Chief September 20, 1996
____________________________________ Executive Officer
James F. Halpin
/s/ James E. Skinner Executive Vice President and September 20, 1996
____________________________________ Chief Financial Officer
James E. Skinner (Principal Financial and
Accounting Officer)
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT AND IN THE CAPACITIES AND ON THE DATES INDICATED.
SIGNATURES TITLE DATE
---------- ----- ----
/s/ Giles H. Bateman Chairman of the Board of September 20, 1996
____________________________________ Directors
Giles H. Bateman
/s/ James F. Halpin Director September 20, 1996
____________________________________
James F. Halpin
/s/ Leonard L. Berry Director September 20, 1996
____________________________________
Leonard L. Berry, Ph.D.
/s/ Warren D. Feldberg Director September 20, 1996
____________________________________
Warren D. Feldberg
Director September 20, 1996
____________________________________
Lawrence Mittman
/s/ Kevin J. Roche Director September 20, 1996
____________________________________
Kevin J. Roche
/s/ Edith Weiner Director September 20, 1996
____________________________________
Edith Weiner
20
COMPUSA INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
The following consolidated financial statements of CompUSA Inc. are included
in response to Item 8:
PAGE
----
Report of Independent Auditors............................................ F-2
Consolidated Balance Sheets as of June 29, 1996 and June 24, 1995......... F-3
Consolidated Statements of Operations for the fiscal years ended
June 29, 1996, June 24, 1995, and June 25, 1994.......................... F-4
Consolidated Statements of Stockholders' Equity for the fiscal
years ended June 29, 1996, June 24, 1995, and June 25, 1994.............. F-5
Consolidated Statements of Cash Flows for the fiscal years ended
June 29, 1996, June 24, 1995, and June 25, 1994.......................... F-6
Notes to Consolidated Financial Statements................................ F-7
Separate financial statements relating to the Company's subsidiaries are
omitted since all of them are wholly owned and have each guaranteed the
Company's 9 1/2% Senior Subordinated Notes due 2000 on a full, unconditional
and joint and several basis and the Company does not consider such separate
financial statements to be material to investors.
All financial statement schedules have been omitted because the required
information is not present or is not present in amounts sufficient to require
submission of the schedule or because the information required is included in
the financial statements, including the notes thereto.
F-1
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
CompUSA Inc.
We have audited the accompanying consolidated balance sheets of CompUSA Inc.
(the "Company") as of June 29, 1996 and June 24, 1995, and the related
consolidated statements of operations, stockholders' equity, and cash flows
for each of the three years in the period ended June 29, 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of CompUSA Inc.
at June 29, 1996 and June 24, 1995, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
June 29, 1996, in conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
ERNST & YOUNG LLP
Dallas, Texas
August 14, 1996
F-2
COMPUSA INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARES)
JUNE 29, JUNE 24,
1996 1995
ASSETS -------- --------
Current assets:
Cash and cash equivalents................................. $207,614 $ 96,494
Accounts receivable, net of allowance for doubtful
accounts of $1,692 and $1,176 at June 29, 1996 and June
24, 1995, respectively................................... 148,109 103,934
Merchandise inventories................................... 398,841 312,202
Prepaid expenses and other................................ 15,669 14,506
-------- --------
Total current assets.................................... 770,233 527,136
Property and equipment, net (Note 3)........................ 131,184 106,290
Other assets................................................ 7,920 7,903
-------- --------
$909,337 $641,329
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $377,774 $282,885
Accrued liabilities (Note 4).............................. 82,178 49,076
Current portion of capital lease obligations (Note 6)..... 4,382 5,047
-------- --------
Total current liabilities............................... 464,334 337,008
Capital lease obligations (Note 6).......................... 5,066 5,153
Senior Subordinated Notes (Note 8).......................... 110,000 110,000
Deferred income taxes (Note 5).............................. 4,032 2,464
Commitments and contingencies (Notes 6 and 10).............. -- --
Stockholders' equity (Note 12):
Preferred stock, $.01 per share par value, 10,000
shares authorized, none issued........................... -- --
Common stock, $.01 per share par value, 100,000,000
shares authorized, with 45,107,858 shares issued
and outstanding at June 29, 1996; no par value,
$.01 per share stated value, with 40,465,920 shares
issued and outstanding at June 24, 1995.................. 451 405
Paid-in capital........................................... 255,667 173,348
Retained earnings......................................... 72,616 12,951
-------- --------
328,734 186,704
Less: Treasury stock, at cost, 189,730 shares at June 29,
1996....................................................... (2,829) --
-------- --------
Total stockholders' equity.............................. 325,905 186,704
-------- --------
$909,337 $641,329
======== ========
See accompanying notes.
F-3
COMPUSA INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
FISCAL YEAR ENDED
----------------------------------
JUNE 29, JUNE 24, JUNE 25,
1996 1995 1994
---------- ---------- ----------
Net sales.................................. $3,829,786 $2,935,901 $2,219,457
Cost of sales and occupancy costs.......... 3,311,682 2,573,945 1,955,183
---------- ---------- ----------
Gross profit............................. 518,104 361,956 264,274
Store operating expenses................... 328,344 263,654 208,356
Pre-opening expenses....................... 5,466 2,454 7,266
General and administrative expenses........ 75,488 54,940 47,963
Transaction costs related to Merger
(Note 2).................................. 3,453 -- --
Restructuring costs (Note 9)............... -- -- 9,918
---------- ---------- ----------
Operating income (loss).................. 105,353 40,908 (9,229)
Other expense (income):
Interest expense......................... 12,487 12,015 12,156
Other income, net........................ (6,983) (2,409) (2,063)
---------- ---------- ----------
5,504 9,606 10,093
---------- ---------- ----------
Income (loss) before income taxes.......... 99,849 31,302 (19,322)
Income tax expense (benefit) (Note 5)...... 40,184 6,963 (2,298)
---------- ---------- ----------
Net income (loss).......................... $ 59,665 $ 24,339 $ (17,024)
========== ========== ==========
Income (loss) per common and common
equivalent share.......................... $ 1.31 $ 0.60 $ (0.44)
========== ========== ==========
Weighted average common and common
equivalent shares......................... 45,610 40,868 38,535
See accompanying notes.
F-4
COMPUSA INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARES)
COMMON STOCK
--------------------- RETAINED
STATED/PAR PAID-IN EARNINGS TREASURY
SHARES VALUE CAPITAL (DEFICIT) STOCK TOTAL
---------- ---------- -------- --------- -------- --------
Balance at June 26,
1993, as reported...... 36,195,814 $362 $148,834 $10,070 $ -- $159,266
Effect of Merger
(Note 2)............... 1,887,740 19 9,017 (4,434) -- 4,602
---------- ---- -------- ------- ------- --------
Balance at June 26,
1993, as restated...... 38,083,554 381 157,851 5,636 -- 163,868
Issuance of Common
Stock pursuant to
stock option and stock
purchase plans and
other.................. 769,413 8 3,494 -- -- 3,502
Issuance of Common
Stock for cash, net of
offering costs......... 645,607 6 10,019 -- -- 10,025
Net loss................ -- -- -- (17,024) -- (17,024)
---------- ---- -------- ------- ------- --------
Balance at June 25,
1994................... 39,498,574 395 171,364 (11,388) -- 160,371
Issuance of Common
Stock pursuant to
stock option and stock
purchase plans and
other.................. 967,346 10 1,984 -- -- 1,994
Net income.............. -- -- -- 24,339 -- 24,339
---------- ---- -------- ------- ------- --------
Balance at June 24,
1995................... 40,465,920 405 173,348 12,951 -- 186,704
Issuance of Common
Stock for cash, net of
offering costs......... 4,025,000 40 76,745 -- -- 76,785
Issuance of Common
Stock upon exercise of
stock options and
other.................. 616,938 6 5,454 -- -- 5,460
Purchase of treasury
stock.................. -- -- -- -- (3,521) (3,521)
Sale of treasury stock
to benefit plan........ -- -- 120 -- 692 812
Net income.............. -- -- -- 59,665 -- 59,665
---------- ---- -------- ------- ------- --------
Balance at June 29,
1996.................... 45,107,858 $451 $255,667 $72,616 $(2,829) $325,905
========== ==== ======== ======= ======= ========
See accompanying notes.
F-5
COMPUSA INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
FISCAL YEAR ENDED
---------------------------
JUNE
JUNE 29, 24, JUNE 25,
1996 1995 1994
-------- ------- --------
Cash flows provided by (used in) operating
activities:
Net income (loss)............................... $ 59,665 $24,339 $(17,024)
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating
activities:
Depreciation and amortization................. 27,625 21,285 15,148
Restructuring costs........................... (214) (2,504) 2,718
Deferred income tax........................... 266 (4,645) (1,133)
Changes in assets and liabilities:
Decrease (increase) in:
Accounts receivable....................... (44,175) (9,875) (24,968)
Income tax receivable..................... (417) 2,479 (1,540)
Merchandise inventories................... (86,639) (29,603) (73,614)
Prepaid expenses and other................ 139 286 (1,703)
Other assets.............................. (63) (694) 258
Increase in:
Accounts payable and accrued liabilities.. 126,384 134,495 31,638
Income taxes payable...................... 5,140 41 --
-------- ------- --------
Total adjustments...................... 28,046 111,265 (53,196)
-------- ------- --------
Net cash provided by (used in) operating
activities........................... 87,711 135,604 (70,220)
Cash flows used in investing activities:
Capital expenditures............................ (47,418) (30,057) (46,488)
Other........................................... (565) 572 385
-------- ------- --------
Net cash used in investing activities.. (47,983) (29,485) (46,103)
Cash flows provided by (used in) financing
activities:
Proceeds from issuance of Common Stock.......... 79,344 1,994 13,527
Purchase of treasury stock...................... (3,521) -- --
Sale of treasury stock to benefit plan.......... 812 -- --
Borrowings under line of credit agreements...... 48,750 54,127 113,428
Repayments of borrowings under line of credit
agreements..................................... (48,750) (92,627) (75,428)
Payments under capital lease obligations........ (5,243) (5,149) (3,770)
-------- ------- --------
Net cash provided by (used in)
financing activities................. 71,392 (41,655) 47,757
-------- ------- --------
Net increase (decrease) in cash and cash
equivalents...................................... 111,120 64,464 (68,566)
Cash and cash equivalents at beginning of year.... 96,494 32,030 100,596
-------- ------- --------
Cash and cash equivalents at end of year.......... $207,614 $96,494 $ 32,030
======== ======= ========
See accompanying notes.
F-6
COMPUSA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business - CompUSA Inc. (the "Company") is a retailer of personal computer
hardware, software, accessories, and related products and services conducting
its operations principally through its Computer Superstores in the United
States. At June 29, 1996, June 24, 1995, and June 25, 1994, the Company
operated 105, 85, and 76 Computer Superstores, respectively. In addition to
the retail sales of its stores, the Company's stores also fulfill the
principal marketing, product, and service functions of the Company's other
businesses, including direct sales to corporate, government, education, and
mail order customers and training and technical services. In addition, the
Company conducts mail order operations both through its stores and through PCs
Compleat, Inc. ("PCs Compleat"), a wholly-owned subsidiary of the Company.
Fiscal year - The Company's fiscal year is a 52/53-week year ending on the
last Saturday of each June. All references to the fiscal year ended June 29,
1996 relate to the fifty-three weeks then ended. All references to the fiscal
years ended June 24, 1995 and June 25, 1994, respectively, relate to the
fifty-two weeks then ended.
Consolidation - The financial statements include the accounts of the Company
and its wholly-owned subsidiaries. All significant intercompany transactions
have been eliminated.
Use of Estimates - The preparation of consolidated financial statements in
conformity with generally accepted accounting principles requires management
to make certain estimates and assumptions. These estimates and assumptions
affect the reported amounts of assets, liabilities, revenues, and expenses and
the disclosure of gain and loss contingencies at the date of the consolidated
financial statements. Actual results could differ from those estimates.
Cash and cash equivalents - Cash on hand in stores, deposits in banks, and
short-term investments with original maturities of three months or less are
considered cash and cash equivalents. Cash and cash equivalents are carried at
cost, which approximates fair value.
Accounts receivable - Accounts receivable represent amounts due from
customers related to the sale of the Company's products and services. Such
receivables are generally unsecured and are generally due from a diverse group
of corporate, government, and education customers located throughout the
United States and, accordingly, do not include any specific concentrations of
credit risk. The Company believes it has provided adequate reserves for
potentially uncollectible accounts. For the fiscal years ended June 29, 1996,
June 24, 1995, and June 25, 1994, the Company's bad debt expense was $878,000,
$766,000, and $762,000, respectively.
Merchandise inventories - Merchandise inventories are valued at the lower of
cost, determined on a weighted average basis, or market.
Property and equipment - Property and equipment are stated at cost.
Depreciation is provided in amounts sufficient to charge the cost of the
respective assets to operations over their estimated service lives on a
straight-line basis. Estimated service lives are as follows:
Furniture and fixtures..................................... 5-10 years
Equipment.................................................. 3-5 years
Leasehold improvements..................................... Life of lease
Equipment under capital leases............................. Life of lease
F-7
COMPUSA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Advertising Expenses - Advertising expenses are expensed in the month
incurred, subject to reduction by reimbursement from vendors. Net advertising
expenses were not a significant component of store operating expenses for the
fiscal years ended June 29, 1996, June 24, 1995, and June 25, 1994.
Pre-opening costs - Pre-opening costs are deferred prior to the date of the
store's grand opening and are expensed in the month of the store's grand
opening. Pre-opening costs consist primarily of personnel and advertising
expenses incurred prior to a store's opening and promotional costs associated
with the opening.
Income taxes - Income taxes are maintained in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income
Taxes," whereby deferred income tax assets and liabilities result from
temporary differences. Temporary differences are differences between the tax
bases of assets and liabilities and their reported amounts in the consolidated
financial statements that will result in taxable or deductible amounts in
future years.
Income (loss) per share - Income (loss) per common and common equivalent
share is computed using the weighted average number of shares of common stock
and common stock equivalents outstanding during each period. If dilutive, the
effects of stock options are calculated using the treasury stock method.
On March 27, 1996, the Company's Board of Directors declared a two-for-one
stock split effected in the form of a stock dividend to stockholders of record
on April 8, 1996, payable on April 22, 1996. Stock options and all other
agreements payable in the Company's common stock (the "Common Stock") were
amended to reflect the split. An amount equal to the par value of shares
issued has been transferred from additional paid-in capital to the common
stock account.
All references to the number of shares, except for shares authorized, and
income per common and common equivalent share amounts in the consolidated
financial statements and the accompanying notes have been adjusted on a
retroactive basis to reflect the stock split and the Company's acquisition of
PCs Compleat (Note 2).
Long-Lived Assets - In March 1995, the Financial Accounting Standards Board
("FASB") issued SFAS No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of." SFAS No. 121 requires
that losses on the impairment of long-lived assets used in operations be
recorded when indicators of impairment are present and the undiscounted cash
flows to be generated by those assets are less than the assets' carrying
amounts. The standard is effective for fiscal years beginning after December
15, 1995 and will be adopted by the Company in the preparation of its
financial statements for the first quarter of its fiscal year ending June 28,
1997. Based on current circumstances, the Company does not believe that the
adoption of the standard will have any material impact on the Company's
financial position or results of operations.
Stock-Based Compensation - In October 1995, the FASB issued SFAS No. 123,
"Accounting for Stock-Based Compensation." SFAS No. 123 gives companies a
choice of recognizing compensation expense related to stock-based awards by
adopting a new fair value based method of accounting or by continuing to
account for those awards using the accounting prescribed by APB Opinion 25,
"Accounting for Stock Issued to Employees." The Company will adopt the
disclosure requirements of SFAS No. 123 in its fiscal year ending June 28,
1997 and plans to continue to account for stock compensation using APB Opinion
25, making pro forma disclosures of net income and earnings per share as if
the fair value based method had been applied.
Reclassifications - Certain prior year balances have been reclassified to
conform to the current year basis of presentation.
F-8
COMPUSA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
2. ACQUISITION OF PCS COMPLEAT, INC.
On May 30, 1996, pursuant to an Agreement and Plan of Merger dated as of May
15, 1996 (the "Merger Agreement") between the Company and PCs Compleat, PCs
Compleat became a wholly-owned subsidiary of the Company (the "Merger"). PCs
Compleat is engaged in the direct resale of brand-name personal computers and
peripherals.
The Merger was approved by the unanimous written consent of the stockholders
of PCs Compleat as of May 29, 1996. Pursuant to the Merger, each share of
common stock, Series A Preferred Stock, Series B Preferred Stock, and Series C
Preferred Stock of PCs Compleat was canceled and converted into the right to
receive 0.18923226893 shares (the "Exchange Ratio") of Common Stock of the
Company. Pursuant to the terms of the Merger Agreement, 2,632,717 shares of
Common Stock were issued by the Company. In addition, the Company assumed all
outstanding options granted under a stock option plan maintained by PCs
Compleat and converted such options into options to purchase an aggregate of
325,413 shares of Common Stock of the Company.
The Company's consolidated financial statements reflect the Merger under the
application of the pooling of interests method of accounting. Under the
pooling of interests method of accounting, the historical book values of the
assets, liabilities, and stockholders' equity of PCs Compleat, as reported on
its balance sheet, have been carried over onto the consolidated balance sheet
of the Company and no goodwill or other intangible assets were created. In
addition, the Company has restated its consolidated statements of operations
to include the results of operations of PCs Compleat for each of the fiscal
years presented.
Separate and combined results of operations of the Company and PCs Compleat
are as follows:
PCS
COMPANY COMPLEAT CONSOLIDATED
---------- -------- ------------
(IN THSOUANDS)
Fiscal year ended June 29, 1996
Net sales.................................. $3,608,250 $221,536 $3,829,786
Net income................................. 56,743 2,922 59,665
Fiscal year ended June 24, 1995
Net sales.................................. $2,813,064 $122,837 $2,935,901
Net income................................. 22,956 1,383 24,339
Fiscal year ended June 25, 1994
Net sales.................................. $2,145,739 $ 73,718 $2,219,457
Net loss................................... (16,760) (264) (17,024)
F-9
COMPUSA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
3. PROPERTY AND EQUIPMENT
Property and equipment consist of:
FISCAL YEAR ENDED
-----------------
JUNE 29, JUNE 24,
1996 1995
-------- --------
(IN THOUSANDS)
Furniture, fixtures, and equipment........................... $103,425 $ 75,858
Leasehold improvements....................................... 37,899 30,945
Equipment under capital leases............................... 22,995 19,396
Land......................................................... 2,842 2,842
Capital projects in progress................................. 30,984 19,510
-------- --------
198,145 148,551
Less accumulated depreciation and amortization............... 66,961 42,261
-------- --------
$131,184 $106,290
======== ========
4. ACCRUED LIABILITIES
Accrued liabilities consist of:
FISCAL YEAR ENDED
-----------------
JUNE 29, JUNE 24,
1996 1995
-------- --------
(IN THOUSANDS)
Salaries and bonuses.......................................... $30,757 $18,589
Taxes, other than income and payroll.......................... 17,622 10,282
Rent.......................................................... 9,337 6,991
Royalties..................................................... 1,406 2,648
Other......................................................... 23,056 10,566
------- -------
$82,178 $49,076
======= =======
F-10
COMPUSA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
5. INCOME TAXES
The provision for income taxes is summarized as follows:
FISCAL YEAR ENDED
----------------------------
JUNE 29, JUNE 24, JUNE 25,
1996 1995 1994
-------- --------- --------
(IN THOUSANDS)
Income tax provision (benefit):
Current:
Federal.......................................... $35,325 $10,183 $(1,683)
State............................................ 4,593 1,425 518
Deferred........................................... 266 (4,645) (1,133)
------- ------- -------
$40,184 $ 6,963 $(2,298)
======= ======= =======
The reconciliation of the income tax provision (benefit) to the amount
calculated based on the federal statutory rate is as follows:
FISCAL YEAR ENDED
----------------------------
JUNE 29, JUNE 24, JUNE 25,
1996 1995 1994
-------- -------- --------
(IN THOUSANDS)
Income tax expense (benefit) at statutory rate...... $34,947 $10,956 $(6,762)
State income taxes, less federal benefit............ 3,047 926 427
Alternative minimum tax............................. -- (2,805) 2,533
Unrecognized future benefits of temporary
differences........................................ -- -- 1,621
Reversal of valuation allowance..................... (1,252) (2,008) --
Nondeductible expenses, primarily transaction costs. 1,209 -- --
Tax-exempt interest income.......................... (1,471) -- --
Other............................................... 3,704 (106) (117)
------- ------- -------
$40,184 $ 6,963 $(2,298)
======= ======= =======
F-11
COMPUSA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The tax effects of temporary differences giving rise to the deferred tax
asset (liability) at June 29, 1996 and June 24, 1995 are as follows:
DEFERRED TAX ASSET (LIABILITY)
--------------------------------------
JUNE 29, 1996 JUNE 24, 1995
------------------ -------------------
CURRENT NONCURRENT CURRENT NONCURRENT
------- ---------- ------- ----------
(IN THOUSANDS)
Fixed assets............................ $ -- $(3,859) $ -- $(4,811)
Accounts receivable..................... 498 -- 335 --
Merchandise inventories................. 567 -- 3,717 --
Net operating loss carryforward of PCs
Compleat............................... 510 -- 1,569 --
Deferred rentals........................ -- 3,286 -- 2,447
Prepaid expenses and other deferrals.... 2,991 (3,459) (1,941) (100)
Accrued liabilities..................... 3,366 -- 4,202 --
------ ------- ------- -------
$7,932 $(4,032) $ 7,882 $(2,464)
Less effect of valuation allowance...... -- -- (1,252) --
------ ------- ------- -------
$7,932 $(4,032) $ 6,630 $(2,464)
====== ======= ======= =======
Prior to the Merger, PCs Compleat was not included in the Company's
consolidated tax return but rather represented a separate taxpaying entity. At
June 24, 1995, a valuation allowance of $1,252,000 was recorded to reduce the
carrying value of the PCs Compleat net deferred tax asset as of June 24, 1995
to zero. The tax benefits associated with PCs Compleat's deferred tax asset
were recognized in the fiscal year ended June 29, 1996 and the valuation
allowance was reversed.
6. LEASES
The Company leases equipment under capital and operating leases that expire
at various dates through 2000. The Company operates in facilities leased under
noncancelable operating leases that expire at various dates through 2016 and
the majority of which contain renewal options and require the Company to pay a
proportionate share of common area maintenance.
At June 29, 1996, future minimum lease payments under all leases with
initial or remaining noncancelable lease terms in excess of one year are as
follows:
CAPITAL OPERATING
FISCAL YEAR LEASES LEASES
- ----------- ------- ---------
(IN THOUSANDS)
1997.......................................................... $ 4,991 $ 45,480
1998.......................................................... 3,194 47,148
1999.......................................................... 1,488 47,540
2000.......................................................... 657 46,331
2001.......................................................... 146 43,355
Thereafter.................................................... -- 314,985
------- --------
Total minimum lease payments.................................. 10,476 $544,839
========
Less amount representing interest............................. 1,028
-------
Present value of minimum lease payments....................... 9,448
Less current portion.......................................... 4,382
-------
Capital lease obligations due after one year.................. $ 5,066
=======
F-12
COMPUSA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Rental expense of the Company amounted to $37,692,000, $30,943,000, and
$23,777,000 for the fiscal years ended June 29, 1996, June 24, 1995, and June
25, 1994, respectively.
7. CREDIT AGREEMENT
At June 29, 1996, the Company has an unsecured credit agreement (the "Credit
Agreement") with a consortium of banks that provides for borrowings and
letters of credit up to a maximum of $75,000,000. The Credit Agreement
replaced a previous $50,000,000 secured credit facility that was terminated in
June 1995. Borrowings under the Credit Agreement are subject to a borrowing
base limitation (the "Borrowing Base") that is equal to the sum of (a) 80% of
eligible accounts, as defined, and (b) an amount equal to 40% of eligible
inventory, which is defined as inventory minus outstanding trade accounts
payable incurred with respect to the purchase or production of eligible
inventory (provided that the amount computed in (b) above cannot comprise more
than $20,000,000 of the Borrowing Base), less (c) outstanding letters of
credit (which may not exceed $35,000,000 in the aggregate). At June 29, 1996
and June 24, 1995, no amounts were outstanding under the Credit Agreement and
the Company had $74,400,000 and $60,000,000, respectively, available for
future borrowings (after reduction for outstanding letters of credit).
Borrowings under the Credit Agreement bear interest, at the Company's
option, at either a prime rate (8.25% per annum as of June 29, 1996) or a rate
based on the London Interbank Offering Rate ranging from 5.5% to 6.125% per
annum as of June 29, 1996, plus a specified margin. The Company also pays
certain commitment and agent fees. Although the Credit Agreement expires in
June 1999, the Company has the annual option to extend the Credit Agreement
for an additional year with the banks' approval. Borrowings under the credit
facility in place before the Credit Agreement bore interest at the bank's
prime rate.
The Credit Agreement requires the maintenance of certain financial ratios.
If the Company is unable to maintain certain minimum financial ratios, the
banks may require outstanding borrowings under the Credit Agreement to be
secured by the Company's accounts receivable and certain approved inventories.
The Credit Agreement also imposes credit limitations on mergers and
consolidations and prohibits the payment of dividends. The indebtedness under
the Credit Agreement is guaranteed on a full, unconditional, and joint and
several basis by all the current subsidiaries of the Company.
8. SENIOR SUBORDINATED NOTES
In June 1993, the Company issued $110,000,000 in principal amount of 9 1/2%
Senior Subordinated Notes due June 15, 2000 (the "Senior Subordinated Notes").
Interest on the Senior Subordinated Notes is payable semi-annually on each
June 15 and December 15. The Senior Subordinated Notes are subordinated in
right of payment to all existing and future senior indebtedness of the
Company, as defined. Senior indebtedness, which totaled approximately
$387,000,000 and $293,000,000 at June 29, 1996 and June 24, 1995,
respectively, consists primarily of capital lease obligations, indebtedness
incurred under the Credit Agreement, and trade payables.
The Senior Subordinated Notes are redeemable on or after June 15, 1998, at
the option of the Company, in whole or in part, at 102.714% of the principal
amount, declining to 100% of the principal amount on June 15, 1999 and
thereafter. The Senior Subordinated Notes grant the holders the right to
require the Company to repurchase all or any portion of their notes at 101% of
the principal amount thereof, together with accrued interest, following the
occurrence of a change in control of the Company, as defined.
The indenture related to the Senior Subordinated Notes restricts, among
other things, the ability of the Company and its subsidiaries to incur
additional indebtedness or issue preferred stock, pay dividends and make
F-13
COMPUSA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
other distributions, sell or issue stock of a subsidiary, create encumbrances
on the ability of any subsidiary that is a guarantor to pay dividends or make
other restricted payments, engage in certain transactions with affiliates,
dispose of certain assets, merge or consolidate with or into, or sell or
otherwise transfer their properties and assets as an entirety to, another
entity, incur indebtedness that would rank senior in right of payment to the
Senior Subordinated Notes and be subordinated to any other indebtedness of the
Company, or create additional liens.
The Senior Subordinated Notes are guaranteed on a full, unconditional and
joint and several basis by all of the Company's direct and indirect
subsidiaries, each of which is wholly owned. The combined summarized
information of these subsidiaries is as follows:
AS OF AND FOR
THE FISCAL YEAR
ENDED
-----------------
JUNE 29, JUNE 24,
1996 1995
-------- --------
(IN THOUSANDS)
Intercompany receivables....................................... $ -- $92,293
Other current assets........................................... 39,442 40,001
Noncurrent assets.............................................. 3,955 1,880
Intercompany payables.......................................... 362 6,123
Other current liabilities...................................... 22,775 15,009
Long-term debt and liabilities................................. 704 61
Intercompany revenues.......................................... 60,933 28,434
Other revenues................................................. 221,536 123,304
Costs and expenses............................................. 218,742 122,004
Net income..................................................... 42,302 15,611
In preparation of the Company's consolidated financial statements, all
intercompany accounts were eliminated.
The fair value of the Senior Subordinated Notes, based on quoted market
prices, was approximately $111,650,000 and $105,875,000 at June 29, 1996 and
June 24, 1995, respectively.
9. RESTRUCTURING CHARGE
In the second quarter of the fiscal year ended June 25, 1994, the Company
recognized a pre-tax restructuring charge of $9,918,000 in connection with the
reorganization of the Company's operating management structure, elimination of
its international division, centralization of certain inventory management
functions, and the outsourcing of both the majority of the assembly of its
private label computers and its spare parts fulfillment operations. The
primary components of the restructuring charge were the writedown of certain
nonstrategic assets to net realizable value, certain accruals for future lease
obligations, and termination and employee severance costs. Substantially all
of these costs were charged against the restructuring reserve during the
fiscal year ended June 25, 1994. Management believes the changes resulting
from the implementation of the restructuring plan have positively affected
store operating and general and administrative expenses, including payroll,
depreciation, and occupancy costs.
10. COMMITMENTS AND CONTINGENCIES
The Company is a defendant from time to time in lawsuits incidental to its
business. Based on currently available information, the Company believes that
resolution of all known contingencies would not have a material adverse impact
on the Company's financial statements. However, there can be no assurance that
future
F-14
COMPUSA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
costs would not be material to results of operations of the Company for a
particular future period. In addition, the Company's estimates of future costs
are subject to change as events evolve and additional information becomes
available during the course of the litigation.
11. EMPLOYEE BENEFIT PLANS
The Company sponsors a defined contribution profit sharing plan (the "401(k)
Plan") covering employees of the Company and its subsidiaries, other than PCs
Compleat, who are at least 21 years of age and have worked at least 500 hours
during the six months prior to the plan entry dates. The 401(k) Plan is
intended to constitute a qualified profit sharing plan within the meaning of
Section 401(a) of the Internal Revenue Code of 1986, as amended (the "Code"),
which includes a qualified cash or deferred arrangement within the meaning of
Code section 401(k). In addition, the Company sponsors a deferred compensation
plan that permits eligible officers and employees to defer a portion of their
compensation. Contributions to both the 401(k) Plan and the deferred
compensation plan consist of employee pre-tax contributions determined as a
percentage of each participating employee's compensation and the Company's
matching contributions up to a specified limit. The Company may make
additional contributions to either or both plans at the discretion of the
Company's Board of Directors. The Company's expense for contributions to the
401(k) Plan and the deferred compensation plan for the fiscal years ended June
29, 1996 and June 24, 1995 aggregated $1,735,000 and $512,000, respectively.
PCs Compleat sponsors a defined contribution profit sharing plan that is
intended to be qualified within the meaning of Code section 401(a) and that
includes a qualified cash or deferred arrangement within the meaning of Code
section 401(k). The plan covers substantially all employees of PCs Compleat
who meet minimum age and service requirements and allows participants to defer
a portion of their annual compensation on a pre-tax basis. No contributions
were made to the plan by PCs Compleat for the fiscal years ended June 29,
1996, June 24, 1995, and June 25, 1994.
12. STOCKHOLDERS' EQUITY
Common Stock - In September 1995, the Company completed a public offering,
selling 4,025,000 newly-issued shares of Common Stock and receiving net
proceeds of approximately $76.8 million (net of offering costs of
approximately $3.5 million).
In May 1994, PCs Compleat completed a private offering of 3,411,663 shares
of preferred stock, receiving net proceeds of approximately $10.0 million.
These shares, as well as all other shares of common stock and preferred stock
of PCs Compleat at the date of the Merger, were converted into shares of
Common Stock of the Company. The 3,411,663 shares of preferred stock of PCs
Compleat sold in May 1994 represent the equivalent of 645,607 shares of Common
Stock of the Company.
Treasury Stock - In December 1995, the Company repurchased 236,200 shares of
Common Stock, to be held as treasury stock, at a weighted average cost of
$14.89 per share, excluding transaction costs. In February 1996, the Company
made a cash contribution to the 401(k) Plan to effect the Company's required
contribution to the plan for 1995, which the plan used to purchase 46,470
shares of treasury stock from the Company.
Stock-Based Incentive Compensation Plans - The CompUSA Inc. Long-Term
Incentive Plan (the "Long-Term Incentive Plan") provides for the granting of
stock-based incentive compensation in the form of stock options, restricted
stock grants, stock appreciation rights, performance share awards, and stock
unit awards, or a combination thereof. The Long-Term Incentive Plan, as
restated and amended, authorizes the issuance of up to 6,394,368 shares of
Common Stock upon the exercise of such incentive awards to employees,
nonemployee directors, and advisors of the Company.
F-15
COMPUSA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Under the Long-Term Incentive Plan, stock option awards may be granted in
the form of incentive stock options or nonstatutory stock options and are
generally exercisable for up to ten years following the date such option
awards are granted. Exercise prices of incentive stock options must be equal
to or greater than 100% of the fair market value of the Common Stock on the
grant date.
Prior to the Merger, PCs Compleat maintained a stock option plan (the "PCs
Compleat Plan") for the benefit of its employees. In connection with the
Merger, the Company assumed all outstanding options granted under the PCs
Compleat Plan and converted such options into options to purchase an aggregate
of 325,413 shares of Common Stock of the Company. Subsequent to the Merger, no
additional options will be granted pursuant to the PCs Compleat Plan.
A summary of stock option transactions related to both the Long-Term
Incentive Plan and the PCs Compleat Plan for the fiscal years ended June 29,
1996, June 24, 1995, and June 25, 1994 is set forth below:
OPTION
SHARES PRICES
---------- ------------
Outstanding at June 26, 1993.......................... 3,231,301 $0.53-$15.69
Granted............................................... 1,432,148 $0.53-$16.06
Exercised............................................. (482,573) $0.53-$13.44
Canceled.............................................. (349,881) $0.53-$16.06
----------
Outstanding at June 25, 1994.......................... 3,830,995 $0.53-$16.06
Granted............................................... 1,416,621 $1.85-$12.37
Exercised............................................. (716,931) $0.53-$13.44
Canceled.............................................. (1,376,416) $0.53-$16.06
----------
Outstanding at June 24, 1995.......................... 3,154,269 $0.53-$15.56
Granted............................................... 514,165 $2.65-$35.37
Exercised............................................. (535,156) $0.53-$15.65
Canceled.............................................. (161,050) $0.53-$17.69
----------
Outstanding at June 29, 1996.......................... 2,972,228 $0.53-$35.37
==========
Options exercisable at June 29, 1996.................. 1,136,037
==========
For the fiscal year ended June 29, 1996, the Company granted restricted
stock awards for 81,786 shares of Common Stock to the Company's officers. The
restricted stock awards vest to the employees on the fifth anniversary of the
grant date. The vesting period may be accelerated to a minimum of three years
if specified performance goals are met. Based upon the attainment of the
specified performance goals for the fiscal year ended June 29, 1996, the
restricted stock awards will vest no later than the fourth anniversary of the
grant date. At June 29, 1996, none of the restricted stock awards were vested.
At June 29, 1996, there were 4,425,998 shares of Common Stock reserved for
future issuance pursuant to the Long-Term Incentive Plan and the PCs Compleat
Plan.
Employee Stock Purchase Plan - The 1991 Employee Stock Purchase Plan (the
"Stock Purchase Plan") was terminated by the Company effective July 1, 1994.
Prior to its termination, shares of Common Stock were sold under the Stock
Purchase Plan pursuant to options automatically available to all employees
(excluding employees who would own beneficially more than 5% of the
outstanding Common Stock after grant of an option) who were employed by the
Company for at least six months and were customarily employed by the Company
for at least 20 hours per week and for more than five months per year. For the
fiscal years ended June 24, 1995 and June 24, 1994, 223,244 and 223,440 shares
of Common Stock, respectively, were sold under the Stock Purchase Plan.
F-16
COMPUSA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Preferred Stock - The Company has authorized 10,000 shares of preferred
stock, $.01 per share par value, none of which was issued and outstanding as
of June 29, 1996. However, the Board of Directors has the authority, without
further stockholder approval, to issue shares of preferred stock in one or
more series and to determine the dividend rights, any conversion rights or
rights of exchange, voting rights, rights and terms of redemption (including
sinking fund provisions), liquidation preferences, and any other rights,
preferences, privileges, and restrictions of any series of preferred stock,
and the number of shares constituting such series and the designation thereof.
The Company has no present plans to issue any shares of preferred stock. The
terms of the Company's Senior Subordinated Notes limit the Company's ability
to issue preferred stock (See Note 8).
Rights Agreement - On April 29, 1994, the Board of Directors of the Company
declared a dividend of one right to purchase preferred stock (a "Right") for
each outstanding share of Common Stock. The Rights will expire on April 28,
2004. Each Right will entitle stockholders, in certain circumstances, to buy
one ten-thousandth of a newly issued share of Series A Junior Participating
Preferred Stock (the "Junior Preferred Stock") of the Company at the purchase
price of $120.
The Rights will be exercisable and transferable apart from the Common Stock
only if a person or group acquires beneficial ownership of 20% or more of the
Common Stock or commences a tender or exchange offer upon consummation of
which such person or group would beneficially own 20% or more of the Common
Stock.
The Company will generally be entitled to redeem the Rights at $.001 per
Right at any time until a person or group has become the beneficial owner of
20% or more of the Common Stock. Under the Rights "flip-in" feature, if any
person or group becomes the beneficial owner of 20% or more of the Common
Stock, then each Right not owned by such person or group of certain related
parties will entitle its holder to purchase, at the Right's then current
purchase price, shares of Common Stock (or in certain circumstances as
determined by the Board of Directors, cash, other property, or other
securities) having a value of twice the Right's purchase price.
Under the Rights' "flip-over" provision, if, after any person or group
becomes the beneficial owner of 20% or more of the Common Stock, the Company
is involved in a merger or other business combination transaction with another
person, or sells 50% or more of its assets or earning power in one or more
transactions, each Right will entitle its holder to purchase, at the Right's
then current purchase price, shares of common stock of such other person
having a value of twice the Right's purchase price.
The Junior Preferred Stock will not be redeemable and, unless otherwise
provided in connection with the creation of a subsequent series of preferred
stock, will be subordinate to all other series of the Company's preferred
stock. Each share of Junior Preferred Stock will represent the right to
receive, when and if declared, a quarterly dividend at an annual rate equal to
the greater of $1.00 per share or 10,000 times the quarterly per share cash
dividends declared on the Common Stock during the immediately preceding fiscal
year. In addition, each share of Junior Preferred Stock will represent the
right to receive 10,000 times any noncash dividends (other than dividends
payable in Common Stock) declared on the Common Stock, in like kind. In the
event of the liquidation, dissolution or winding up of the Company, each share
of Junior Preferred Stock will represent the right to receive a liquidation
payment in an amount equal to the greater of $1.00 per share or 10,000 times
the liquidation payment made per share of Common Stock. Each share of Junior
Preferred Stock will have 10,000 votes, voting together with the Common Stock.
In the event of any merger, consolidation, or other transaction in which
common shares are exchanged, each share of Junior Preferred Stock represents
the right to receive 10,000 times the amount received per share of Common
Stock. The rights of the Junior Preferred Stock as to dividends, liquidation,
voting rights, and merger participation are protected by anti-dilution
provisions.
Executive Severance Arrangements - The Company has severance arrangements
for all officers and certain key employees that provide severance pay benefits
in the event of a change in control of the Company, as defined
F-17
COMPUSA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
in the severance agreements. The Company's officers have employment agreements
containing provisions pursuant to which those persons will receive lump sum
severance payments in an amount up to 2.99 times the sum of (i) their current
base salary at the time of termination, (ii) two times their target bonus for
the bonus period in which the change in control occurs, and (iii) their
annualized automobile allowance, together with payments in lieu of continued
group insurance benefits. Key employees not covered by employment agreements
are covered by a plan pursuant to which they will receive, in the event of a
change in control of the Company, lump sum severance payments in an amount
equal to 0.50 times the sum of (i) their annual base salary, (ii) their target
bonus for the bonus period in which the change occurs, and (iii) their
annualized automobile allowance, together with payments in lieu of continued
group insurance benefits. The plan covers 49 key employees.
13. SUPPLEMENTAL CASH FLOW INFORMATION
Cash payments for interest and income taxes are as follows:
FISCAL YEAR ENDED
--------------------------
JUNE 29, JUNE 24, JUNE 25,
1996 1995 1994
-------- -------- --------
(IN THOUSANDS)
Interest.............................................. $11,611 $12,274 $11,768
======= ======= =======
Income taxes.......................................... $35,253 $11,065 $ 1,156
======= ======= =======
Financing and investing activities not affecting cash are as follows:
FISCAL YEAR ENDED
--------------------------
JUNE 29, JUNE 24, JUNE 25,
1996 1995 1994
-------- -------- --------
(IN THOUSANDS)
Additions to property and equipment under capital
leases............................................. $ 4,491 $ 2,257 $11,185
======= ======= =======
14. SUPPLEMENTAL QUARTERLY FINANCIAL DATA (UNAUDITED)
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
-------- -------- ---------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Fiscal Year Ended June 29, 1996:
Net sales............................... $781,978 $983,228 $1,065,731 $998,849
Cost of sales and occupancy costs....... 684,090 852,177 916,837 858,578
Operating income........................ 12,951 31,865 38,603 21,934
Net income.............................. 6,207 18,748 22,933 11,777
Income per common and common equivalent
share.................................. $ 0.15 $ 0.40 $ 0.50 $ 0.25
Weighted average common and common
equivalent shares...................... 42,535 46,509 46,287 47,109
Fiscal Year Ended June 24, 1995:
Net sales............................... $614,097 $791,863 $ 805,580 $724,361
Cost of sales and occupancy costs....... 540,498 696,616 702,865 633,966
Operating income (loss)................. (1,204) 14,755 19,177 8,180
Net income (loss)....................... (2,943) 9,945 12,642 4,695
Income (loss) per common and common
equivalent share...................... $ (0.07) $ 0.24 $ 0.31 $ 0.11
Weighted average common and common
equivalent shares..................... 39,679 40,757 41,270 41,762
F-18
INDEX TO EXHIBITS
EXHIBIT PAGE
NO. INDEX TO EXHIBITS NO.
------- ----------------- -----
2.1 Agreement and Plan of Merger, dated as of May 15, 1996, by and
among the Company, Snowstorm Merger Corp., a Delaware
corporation and a wholly-owned subsidiary of the Company, and
PCs Compleat, pursuant to which the Company acquired PCs
Compleat (the "Plan of Merger"). (9)
3.1 Restated and Amended Certificate of Incorporation. (7)
3.2 Restated and Amended Bylaws. (5)
4.1 Specimen Common Stock Certificate (as amended). (7)
4.2 Specimen 9 1/2% Senior Subordinated Note Due 2000. (4)
4.3 Indenture dated June 17, 1993 among CompUSA Inc., as Issuer,
Compudyne Products, Inc., Compudyne Direct, Inc., CompFinance
Inc., CompService Inc., as Guarantors, and U.S. Trust Company
of Texas, N.A., as Trustee, relating to 9 1/2% Senior
Subordinated Notes Due 2000. (2)
4.4 First Supplemental Indenture dated as of December 1, 1995
among the Company, CompTeam Inc., CompFinance Inc.,
CompService Inc., and U.S. Trust Company of Texas, N.A., as
Trustee. (8)
4.5 Second Supplemental Indenture dated as of February 7, 1996
among the Company, CompTeam Inc., CompFinance Inc.,
CompService Inc., CompUSA Holdings II Inc., and U.S. Trust
Company of Texas, N.A., as Trustee. (13)
4.6 Third Supplemental Indenture dated as of May 14, 1996 among
the Company, CompFinance Inc., CompService Inc., CompTeam
Inc., CompUSA Holdings II Inc., Snowstorm Merger Corp. and
U.S. Trust Company of Texas, N.A., as Trustee. (13)
4.7 Fourth Supplemental Indenture dated as of May 30, 1996 among
the Company, CompFinance Inc., CompService Inc., CompTeam
Inc., CompUSA Holdings II Inc., PCs Compleat, Inc. and U.S.
Trust Company of Texas, N.A., as Trustee. (13)
4.8 Form of Fifth Supplemental Indenture dated as of June 14, 1996
among the Company, CompFinance Inc., CompService Inc.,
CompTeam Inc., CompUSA Holdings II Inc., PCs Compleat, Inc.,
CompUSA Holdings I Inc., CompUSA Management Company, CompUSA
Stores L.P., CompUSA Holdings Company and U.S. Trust Company
of Texas, N.A., as Trustee. (13)
4.9 Subsidiary Guarantees executed by CompTeam Inc., CompUSA
Holdings II Inc., PCs Compleat, Inc., CompUSA Holdings I Inc.,
CompUSA Management Company, CompUSA Stores L.P. and CompUSA
Holdings Company. (13)
4.10 Rights Agreement dated April 29, 1994, between the Company and
Bank One, Texas, N.A., as Rights Agent. (5)
4.11 Letter of the Company dated November 1, 1995, appointing First
Interstate Bank of Texas, N.A., as substitute Rights Agent
under the Rights Agreement. (7)
4.12 Letter of the Company dated August 16, 1996, appointing
American Stock Transfer & Trust Company as substitute Rights
Agent under the Rights Agreement. (13)
10.1 CompUSA Inc. Long-Term Incentive Plan (formerly CompUSA Inc.
1990 Stock Option Plan). (7)
10.2 $75,000,000 Credit Agreement dated June 16, 1995, among the
Company, certain lenders and NationsBank of Texas, N.A., as
Administrative Lender. (6)
10.3 First Amendment to the Credit Agreement dated as of December
21, 1995 among the Company, certain lenders and NationsBank of
Texas, N.A., as Administrative Lender. (9)
10.4 Promissory Note dated June 16, 1995, in the principal amount
of $20,000,000 issued in favor of NationsBank of Texas, N.A.
(6)
10.5 Promissory Note dated June 16, 1995, in the principal amount
of $15,000,000 issued in favor of First Interstate Bank of
Texas, N.A. (6)
EXHIBIT PAGE
NO. INDEX TO EXHIBITS NO.
------- ----------------- -----
10.6 Promissory Note dated June 16, 1995, in the principal amount
of $15,000,000 issued in favor of United States Bank of
Oregon. (6)
10.7 Promissory Note dated June 16, 1995, in the principal amount
of $12,500,000 issued in favor of Wells Fargo Bank. (6)
10.8 Promissory Note dated June 16, 1995, in the principal amount
of $12,500,000 issued in favor of Bank One, Texas, N.A. (6)
10.9 Subsidiary Guaranty dated June 16, 1995, made by CompFinance
Inc. and CompService Inc. (6)
10.10 Agreements and Adoptions of Subsidiary Guaranty executed by
CompTeam Inc., CompUSA Holdings II Inc., PCs Compleat, Inc.,
CompUSA Holdings I Inc., CompUSA Management Company, CompUSA
Stores L.P., and CompUSA Holdings Company. (13)
10.11 Subordination Agreement dated June 16, 1995, among CompFinance
Inc., CompService Inc., NationsBank of Texas, N.A. and certain
lenders. (6)
10.12 Agreements and Adoptions of Subordination Agreement executed
by CompTeam Inc., CompUSA Holdings II Inc., PCs Compleat,
Inc., CompUSA Holdings I Inc., CompUSA Management Company,
CompUSA Stores L.P., and CompUSA Holdings Company. (13)
10.13 The Addison Office Lease Agreement dated September 1, 1992,
between Carter-Crowley Properties, Inc. as Landlord and
CompUSA Inc. as Tenant. (3)
10.14 CompUSA Inc. 1996 Change in Control Termination Plan. (8)
10.15 Form of Employment Agreement dated as of May 1, 1996, as
amended, between the Company and each of J. Samuel Crowley,
Ronald J. Gilmore, Melvin D. McCall, Lawrence N. Mondry, Paul
Poyfair, James E. Skinner and Mark R. Walker. (13)
10.16 Form of Employment Agreement dated as of May 1, 1996, as
amended, between the Company and each of Anthony J. Cincotta,
Aka A. DeMesa, Paul F. Ewert, Robyn Gatch-Priest, Harold D.
Greenberg, James L. Infinger, Barry C. McCook, Jack A. Phelps,
Ronald D. Strongwater and Anthony A. Weiss. (13)
10.17 Form of Employment Agreement dated as of May 27, 1996, between
the Company and J. Robert Gary. (13)
10.18 Form of Employment Agreement between the Company and each of
Gordon B. Hoffstein and Jack Littman-Quinn. (13)
10.19 Form of Employment Agreement dated as of July 9, 1996, between
the Company and each of Rick L. Fountain and Leslie C.
Marshall. (13)
10.20 Form of Employment Agreement dated as of August 16, 1996,
between the Company and James F. Halpin. (13)
10.21 Form of Employment Agreement dated as of August 16, 1996,
between the Company and Harold F. Compton. (13)
10.22 CompSavings Plan for Employees of CompUSA Inc. (10)
10.23 CompUSA Inc. Deferred Compensation Plan (11)
10.24 PCs Compleat, Inc. 1991 Stock Option Plan (12)
11 Computations of Income per Common and Common Equivalent Share.
(13)
21 List of the Company's Subsidiaries. (13)
23 Consent of Ernst & Young LLP. (13)
- --------
(1) Previously filed as an exhibit to Registration Statement No. 33-52236 on
Form S-1 and incorporated herein by reference.
(2) Previously filed as an exhibit to Registration Statement No. 33-62884 on
Form S-3 and incorporated herein by reference.
(3) Previously filed as an exhibit to the Company's Annual Report on Form 10-
K, as amended, for the fiscal year ended June 27, 1992 and incorporated
herein by reference.
(4) Previously filed as an exhibit to the Company's Annual Report on Form 10-K
for the fiscal year ended June 26, 1993 and incorporated herein by
reference.
(5) Previously filed as an exhibit to the Company's Quarterly Report on Form
10-Q for the fiscal quarter ended March 26, 1994 and incorporated herein
by reference.
(6) Previously filed as an exhibit to the Company's Annual Report on Form 10-K
for the fiscal year ended June 24, 1995 and incorporated herein by
reference.
(7) Previously filed as an exhibit to the Company's Quarterly Report on Form
10-Q for the fiscal quarter ended December 23, 1995 and incorporated
herein by reference.
(8) Previously filed as an exhibit to the Company's Quarterly Report on Form
10-Q for the fiscal quarter ended March 23, 1996 and incorporated herein
by reference.
(9) Previously filed as an exhibit to the Company's Report on Form 8-K filed
with the SEC on June 14, 1996, as amended by Form 8-K/A filed with the SEC
on August 2, 1996.
(10) Previously filed as an exhibit to Registration Statement No. 33-86314 on
Form S-8 and incorporated herein by reference.
(11) Previously filed as an exhibit to Registration Statement No. 33-99280 on
Form S-8 and incorporated herein by reference.
(12) Previously filed as an exhibit to Registration Statement No. 333-06235 on
Form S-8 and incorporated herein by reference.
(13) Filed herewith.