<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
Amendment No. 1
CURRENT REPORT
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): May 30, 1996
CompUSA Inc.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of incorporation)
1-11566 75-2261497
(Commission File Number) (I.R.S. Employer Identification No.)
14951 North Dallas Parkway
Dallas, Texas 75240
(Address of principal executive offices)
Registrant's telephone number, including
area code: (214) 982-4000
Not Applicable
(Former name or former address, if changed since last report.)
<PAGE>
The undersigned registrant hereby amends the following item, financial
statements, exhibits or other portions of its Form 8-K dated June 14, 1996 as
set forth in the pages attached hereto:
Item 7. Financial Statements and Exhibits
(a) Financial statements of businesses being acquired:
PCs Compleat, Inc.
Report of Independent Auditors 2
Balance Sheet as of December 31, 1995 and March 31, 1996 (unaudited) 3
Statement of Operations for the year ended December 31, 1995 and the
three months ended March 31, 1996 (unaudited) 4
Statement of Changes in Stockholders' Deficit for the year ended
December 31, 1995 and the three months ended March 31, 1996
(unaudited) 5
Statement of Cash Flows for the year ended December 31, 1995 and the
three months ended March 31, 1996 (unaudited) 6
Notes to Financial Statements 7
(b) Unaudited pro forma consolidated financial information:
CompUSA Inc.
Pro Forma Consolidated Statement of Operations for the thirty-nine
weeks ended March 23, 1996 and March 25, 1995 and the fiscal years
ended June 24, 1995, June 25, 1994 and June 26, 1993 17
Pro Forma Consolidated Balance Sheet as of March 23, 1996 18
Note to Pro Forma Consolidated Financial Statements 19
(c) Exhibits:
23.1 Consent of Price Waterhouse LLP
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this amendment to be signed on its behalf by the
undersigned hereunto duly authorized.
CompUSA Inc.
Dated: July 31, 1996 By: /s/ James E. Skinner
---------------------
James E. Skinner
Executive Vice President and
Chief Financial Officer
COMPUSA INC.
1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
PCs Compleat, Inc.
In our opinion, the accompanying balance sheet and the related statements of
operations, of changes in stockholders' deficit and of cash flows present
fairly, in all material respects, the financial position of PCs Compleat,
Inc. at December 31, 1995 and the results of its operations and its cash
flows for the year then ended in conformity with generally accepted
accounting principles. 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 audit. We conducted our audit of
these statements in accordance with generally accepted auditing standards
which 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,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audit provides a reasonable basis for the opinion expressed
above.
/s/ Price Waterhouse LLP
PRICE WATERHOUSE LLP
Boston, Massachusetts
March 14, 1996
2
<PAGE>
PCs Compleat, Inc.
Balance Sheet
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
December 31, March 31,
1995 1996
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash $ 8,379,000 $ 569,000
Accounts receivable, net of allowance for doubtful accounts of
$103,000 and $231,000 at December 31, 1995 and
March 31, 1996 (unaudited), respectively 18,044,000 23,308,000
Inventories 36,822,000 29,579,000
Prepaid expenses and other current assets 377,000 1,154,000
Deferred income taxes 937,000 937,000
----------- -----------
Total current assets 64,559,000 55,547,000
Fixed assets, net 1,976,000 2,050,000
Other assets 231,000 110,000
Deferred income taxes 309,000 309,000
----------- -----------
$67,075,000 $58,016,000
=========== ===========
<CAPTION>
LIABILITIES, REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' DEFICIT
<S> <C> <C>
Current liabilities:
Amounts due under lines of credit $ 8,000,000 $ 500,000
Amounts due under inventory credit lines 16,639,000 18,807,000
Current portion of capital lease obligations 280,000 217,000
Accounts payable 23,437,000 19,126,000
Accrued expenses 655,000 417,000
----------- -----------
Total current liabilities 49,011,000 39,067,000
----------- -----------
Long-term portion of capital lease obligations 778,000 803,000
----------- -----------
Series C mandatorily redeemable convertible preferred stock,
$0.10 par value; 3,411,663 shares authorized, issued and
outstanding; including accumulated accretion of $1,686,000
and $1,938,000 at December 31, 1995 and March 31, 1996
(unaudited), respectively, net of issuance costs 11,711,000 11,963,000
Series B mandatorily redeemable convertible preferred stock,
$0.10 par value; 1,750,000 shares authorized; 1,500,000 shares
issued and outstanding; including accumulated accretion of
$776,000 and $851,000 at December 31, 1995 and March 31, 1996
(unaudited), respectively, net of issuance costs 3,762,000 3,837,000
Series A mandatorily redeemable convertible preferred stock,
$0.10 par value; 6,375,000 shares authorized; 6,000,000 shares
issued and outstanding; including accumulated accretion of
$2,319,000 and $2,469,000 at December 31, 1995 and March 31, 1996
(unaudited), respectively, net of issuance costs 8,345,000 8,495,000
----------- -----------
Total redeemable preferred stock 23,818,000 24,295,000
----------- -----------
<CAPTION>
Stockholders' deficit:
<S> <C> <C>
Common stock, $0.01 par value; shares authorized:
15,793,655 at December 31, 1995 and March 31, 1996
(unaudited); shares issued and outstanding: 2,521,750
and 2,521,875 at December 31, 1995 and March 31, 1996
(unaudited), respectively, plus additional paid-in capital 30,000 30,000
Accumulated deficit (6,562,000) (6,179,000)
----------- -----------
Total stockholders' deficit (6,532,000) (6,149,000)
----------- -----------
Commitments (Notes 1, 3, 4 and 7) - -
----------- -----------
$67,075,000 $58,016,000
=========== ===========
</TABLE>
3
<PAGE>
PCs Compleat, Inc.
Statement of Operations
- --------------------------------------------------------------------------------
Three months Three months
Year ended ended ended
December 31, March 31, March 31,
1995 1995 1996
(Unaudited) (Unaudited)
Net sales $160,357,000 $ 29,469,000 $ 65,526,000
Cost of goods sold 144,277,000 26,417,000 58,596,000
------------ ----------- ------------
16,080,000 3,052,000 6,930,000
Selling, general and
administrative expenses 14,718,000 2,778,000 5,340,000
------------ ----------- ------------
Income from operations 1,362,000 274,000 1,590,000
Interest expense (135,000) (38,000) (140,000)
Interest income 90,000 51,000 -
------------ ----------- ------------
Income before income tax
(benefit) provision 1,317,000 287,000 1,450,000
Income tax (benefit) provision (1,165,000) 24,000 590,000
------------ ----------- ------------
Net income $ 2,482,000 $ 263,000 $ 860,000
============ =========== ============
The accompanying notes are an integral
part of the financial statements.
4
<PAGE>
PCs Compleat, Inc.
Statement of Changes in Stockholders' Deficit
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
COMMON STOCK AND
ADDITIONAL PAID-IN CAPITAL
<S> <C> <C> <C> <C>
TOTAL
NUMBER OF ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT DEFICIT DEFICIT
Balance at December 31, 1994 2,478,125 $ 25,000 $ (7,119,000) $ (7,094,000)
Issuance of common stock pursuant to exercise
of options 43,625 5,000 - 5,000
Accretion of mandatorily redeemable convertible
preferred stock to redemption value - - (1,925,000) (1,925,000)
Net income - - 2,482,000 2,482,000
--------- ----------- ------------ ------------
Balance at December 31, 1995 2,521,750 30,000 (6,562,000) (6,532,000)
Issuance of common stock pursuant to exercise of
options (unaudited) 125 - - -
Accretion of mandatorily redeemable convertible
preferred stock to redemption value (unaudited) - - (477,000) (477,000)
Net income (unaudited) - - 860,000 860,000
--------- ----------- ------------ ------------
Balance at March 31, 1996 (unaudited) 2,521,875 $ 30,000 $ (6,179,000) $ (6,149,000)
========= =========== ============ ============
</TABLE>
5
<PAGE>
PCs Compleat, Inc.
Statement of Cash Flows
Increase (Decrease) in Cash
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Three months Three months
Year ended ended ended
December 31, March 31, March 31,
1995 1995 1996
(Unaudited) (Unaudited)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 2,482,000 $ 263,000 $ 860,000
Adjustments to reconcile net income to net cash provided
by (used for) operating activities:
Depreciation and amortization 563,000 115,000 260,000
Increase in accrued interest on short-term
investments 29,000 - -
(Increase) decrease in accounts receivable (7,613,000) 2,008,000 (5,264,000)
Increase in deferred income taxes (1,246,000) - -
(Increase) decrease in inventories (20,004,000) (5,174,000) 7,243,000
Increase in prepaid expenses and other current assets (283,000) (248,000) (777,000)
Increase (decrease) in accounts payable 18,465,000 6,896,000 (4,311,000)
Increase (decrease) in accrued expenses 301,000 101,000 (238,000)
Increase (decrease) in amounts due under inventory
credit line 8,656,000 (1,842,000) 2,168,000
------------ ----------- -----------
Net cash provided by (used for) operating activities 1,350,000 2,119,000 (59,000)
------------ ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of fixed assets (1,336,000) (214,000) (334,000)
Purchases of short-term investments (7,000,000) (2,000,000) -
Maturities of short-term investments 8,951,000 1,980,000 -
(Increase) decrease in other assets (42,000) 176,000 121,000
------------ ----------- -----------
Net cash provided by (used for) investing activities 573,000 (58,000) (213,000)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock 5,000 - -
Borrowings under lines of credit 11,850,000 6,750,000 15,250,000
Repayments of amounts under lines of credit (8,850,000) (6,750,000) (22,750,000)
Proceeds from sale leaseback 626,000 - -
Payments of capital lease obligations (109,000) (20,000) (38,000)
------------ ----------- -----------
Net cash provided by (used for) financing activities 3,522,000 (20,000) (7,538,000)
------------ ----------- -----------
Net increase (decrease) in cash 5,445,000 2,041,000 (7,810,000)
------------ ----------- -----------
Cash at beginning of period 2,934,000 2,934,000 8,379,000
------------ ----------- -----------
Cash at end of period $ 8,379,000 $4,975,000 $569,000
============ =========== ===========
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Income taxes paid $ 5,000 $ - $ 50,000
Interest paid $ 131,000 $ 71,869 $ 90,000
</TABLE>
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
In 1995, the Company incurred capital lease obligations in the amount of
$985,000.
The accompanying notes are an integral
part of the financial statements
6
<PAGE>
PCs Compleat, Inc.
Notes to Financial Statements
- --------------------------------------------------------------------------------
1. NATURE OF THE BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PCs Compleat, Inc. (the "Company") was organized as a Delaware corporation
on October 8, 1991. The Company is engaged in the marketing and direct
distribution of name brand microcomputers and peripherals. The Company's
principal markets are the domestic business and consumer markets.
Significant accounting policies followed in the preparation of the
financial statements are summarized as follows:
CASH
At December 31, 1995 and periodically throughout the year, the Company has
maintained cash balances in various operating accounts in excess of
federally insured limits. The Company does not believe that as a result of
this concentration it is subject to any unusual credit risk beyond the
normal risk associated with commercial banking relationships.
REVENUE RECOGNITION, ACCOUNTS RECEIVABLE AND CONCENTRATION OF CREDIT RISK
Revenue is recognized upon shipment of the product. The Company maintains a
reserve for sales returns which is included in accrued expenses in the
accompanying balance sheet.
Financial instruments which potentially expose the Company to concentration
of credit risk include trade accounts receivable. To minimize this risk,
ongoing credit evaluations of customers' financial condition are performed,
although collateral is not required. The Company maintains reserves for
potential credit losses and such losses, in the aggregate, have not
exceeded management's expectations.
At December 31, 1995, accounts receivable from one customer accounted for
approximately 10% of total accounts receivable.
INVENTORIES AND CONCENTRATION OF SUPPLIERS
Inventories are stated at the lower of cost or market, cost being
determined on a weighted average basis. All inventory consists of finished
goods.
The Company purchases the majority of its inventory from several vendors.
Although there is a concentration of sources of supply, management believes
that the nature of its business requires sourcing and marketing products
from the limited number of vendors who dominate the name brand
microcomputer and peripheral market. A change in or loss of one or more of
these vendors could cause a delay in filling customer orders and a possible
loss of sales which could adversely affect results of operations.
FIXED ASSETS
Furniture, equipment and leasehold improvements are stated at cost.
Depreciation and amortization are provided using the straight-line method
based on estimated useful lives or, in the case of leasehold improvements,
over the lesser of the useful lives or the lease term. Equipment held under
capital leases is stated at the lesser of the fair market value of the
equipment or the present value of the minimum lease payments at the
inception of the lease and is amortized on a straight-line basis over the
lives of the related leases. Maintenance and repair expenditures are
charged to expense as incurred.
7
<PAGE>
PCs Compleat, Inc.
Notes to Financial Statements
- --------------------------------------------------------------------------------
INCOME TAXES
The Company utilizes the liability method of accounting for income taxes, as
set forth in Statement of Financial Accounting Standards No. 109, "Accounting
for Income Taxes." Under this method, deferred tax liabilities and assets are
recognized for the expected future tax consequences of temporary differences
between the carrying amounts and the tax basis of assets and liabilities.
ADVERTISING COSTS
The Company expenses the costs of advertising as incurred, except for direct-
response advertising, which is capitalized and amortized over its expected
period of future benefit, generally two months. Direct-response advertising
consists primarily of the costs to produce catalogs for the Company's
products. At December 31, 1995, approximately $61,000 of advertising costs
were included in other assets in the accompanying balance sheet. For the year
ended December 31, 1995, total advertising expense, net of cooperative
advertising allowances, was approximately $2,749,000.
FAIR VALUE OF FINANCIAL INSTRUMENTS
As a result of the variable interest rate under the Company's lines of credit,
the carrying amount of amounts due under credit lines approximates their fair
value at December 31, 1995. The fair value of the mandatorily redeemable
preferred stock is estimated to be approximately $32,189,000, based on the
fair value that the Company could obtain for instruments of similar terms.
UNAUDITED FINANCIAL STATEMENTS
The unaudited financial statements for the three months ended March 31, 1995
and 1996 have been prepared in conformity with generally accepted accounting
principles. In the opinion of the Company, these financial statements include
all adjustments, consisting only of normal recurring adjustments, necessary
for a fair statement of the results for these periods. Results for these
periods are not necessarily indicative of the results to be expected for a
full year.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amount of assets and liabilities and disclosure of
contingent assets and liabilities and the reported amounts of revenues and
expenses for the periods presented. Actual results could differ from those
estimates.
ACCOUNTING FOR STOCK-BASED COMPENSATION
In October 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS 123"). The Company has decided to adopt SFAS 123 as of
January 1, 1996 through disclosure only.
8
<PAGE>
PCs Compleat, Inc.
Notes to Financial Statements
- --------------------------------------------------------------------------------
2. FIXED ASSETS
Fixed assets consist of the following:
ESTIMATED
USEFUL LIFE DECEMBER 31,
(YEARS) 1995
Computer equipment 3 $ 1,009,000
Office furniture and equipment 5 439,000
Equipment held under capital
leases 5 1,332,000
Leasehold improvements Lease term 358,000
------------
3,138,000
Accumulated depreciation and
amortization (1,162,000)
------------
$ 1,976,000
============
Accumulated amortization related to equipment held under capital leases was
$427,000 at December 31, 1995 and is included in accumulated depreciation and
amortization.
3. REVOLVING LINES OF CREDIT AND INVENTORY CREDIT LINE
REVOLVING LINES OF CREDIT
The Company has a joint revolving line of credit with two banks under which
it can borrow up to $15,000,000 based upon a percentage of eligible accounts
receivable, with interest at the bank's prime rate plus 1% (9.5% at December
31, 1995). Borrowings are payable on May 5, 1996 and are secured by all
assets, except that the security interest in inventory is subordinated to the
third parties that provide the Company with inventory financing. At December
31, 1995, $8,000,000 was outstanding under this joint line of credit. Under
the terms of the agreement, the Company is required to comply with certain
restrictive covenants which require the Company to maintain minimum amounts
of profitability, solvency and liquidity. At December 31, 1995, the Company
was in compliance with these covenants.
INVENTORY CREDIT LINES
The Company has an agreement with a third party which allows the Company to
finance up to $15,000,000 of inventory purchased. Financing provided under
the agreement was secured by all inventory financed by the third party. The
third party also has a security interest in all other assets subordinated to
the banks that provide the revolving line of credit.
9
<PAGE>
PCs Compleat, Inc.
Notes to Financial Statements
- --------------------------------------------------------------------------------
The Company has a line of credit agreement with the financing division of
one of its suppliers which allows the Company to finance up to $3,000,000
of inventory purchased from the supplier. Financing is secured by all
inventory financed. The financing division also has a security interest in
all other assets subordinated to the bank that provides the revolving line
of credit.
4. MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED STOCK
CONVERSION
Each share of preferred stock is convertible into one share of common stock
at the option of the holder. Such conversion rate is subject to certain
adjustments as defined in the agreements. The Series A, B and C preferred
stock will automatically convert to common stock upon the closing of a
public offering of the Company's common stock involving aggregate proceeds
of at least $15,000,000 and a per share price of at least $5.90, subject to
certain anti-dilution adjustments. In addition, the Series A preferred
stock will automatically convert to common stock upon the written election
of not less than 80% of the then outstanding Series A stockholders.
DIVIDENDS
The holders of the Series A, B and C preferred stock are entitled to
receive dividends at a per annum rate of $.10 per share, $.20 per share and
$.295 per share, respectively, appropriately adjusted for stock dividends
or splits, when and if declared by the Board of Directors. Dividends on the
preferred stock are cumulative. These dividends are being accreted through
the redemption dates of the preferred stock by charging accumulated
deficit.
MANDATORY REDEMPTION
The Company, at the written election of any holder of the Series A, B or C
preferred stock, is required to redeem up to 33 1/3%, 66 2/3% and 100% of
the then outstanding shares of preferred stock held by such holder on
October 15, 1996, 1997 and 1998, respectively, for $1.00, $2.00 and $2.95
per share plus all accrued but unpaid dividends for the Series A, B and C
preferred stock, respectively.
LIQUIDATION PREFERENCE
In the event of any liquidation, dissolution or winding up of the Company,
the holders of the Series C preferred stock, the holders of the Series B
preferred stock and then the holders of the Series A preferred stock are
entitled to receive prior to, and in preference to, any distribution to the
common stockholders, an amount equal to the greater of $2.95 per share for
Series C preferred stockholders, $2.00 per share for Series B preferred
stockholders and then $1.00 per share for Series A preferred stockholders
plus accrued but unpaid dividends, or such amount per share as would have
been payable had all shares of the Series C preferred stock, the Series B
preferred stock and then the Series A preferred stock been converted to
common stock at a price as designated in the agreement immediately prior to
such event of liquidation, dissolution or winding up.
10
<PAGE>
PCs Compleat, Inc.
Notes to Financial Statements
- --------------------------------------------------------------------------------
VOTING
Each preferred stockholder is entitled to the number of votes equal to the
number of shares of common stock into which such holder's shares are
convertible. In the event of any failure to comply with the preferred
stockholders' redemption rights, the holders of Series C and Series B
preferred stock may, as a class, respectively elect one director of the
Company and the holders of all of the outstanding preferred stock may elect
all other directors of the Company.
WARRANTS
At December 31, 1995, the Company had outstanding warrants to purchase
375,000 and 250,000 shares of Series A redeemable convertible preferred stock
and Series B redeemable convertible preferred stock, respectively, at $2.00
per share. The warrants expire on December 17, 1997 and June 11, 1998,
respectively. At December 31, 1995, all of the warrants were exercisable, and
the Company has reserved 375,000 shares of Series A preferred stock and
250,000 shares of Series B preferred stock for issuance upon exercise of the
outstanding warrants.
5. COMMON STOCK
As of December 31, 1995, the Company had reserved 13,269,705 shares of common
stock for issuance upon the exercise of common stock options (Note 6),
conversion of the outstanding Series A, B and C redeemable convertible
preferred stock (Note 4) and the conversion of preferred stock issued upon
exercise of outstanding preferred stock warrants (Note 4).
The Company has entered into stock purchase agreements with its founders.
Under the agreements, the transfer of shares of common stock by the founders
is subject to certain restrictions as defined in the stockholder agreements.
The Company and then the preferred stockholders have the right of refusal to
purchase any of the founders' shares until the closing of a public offering
in which the offering price per share of common stock is not less than $5.90
and the aggregate net proceeds equal or exceed $15,000,000.
6. STOCK OPTION PLAN
On October 14, 1991, the Board of Directors adopted the 1991 Stock Option
Plan (the "Plan") which provides for the issuance of both non-qualified stock
options and incentive stock options to employees, officers and directors of
the Company. In 1995, the Board of Directors increased the number of shares
of common stock available for issuance under the Plan from 1,478,042 to
1,781,792 through October 2001. The Board of Directors determines the term of
each option, option price, number of shares for which each option is granted
and the rate at which each option is exercisable. The term of each option
generally cannot exceed ten years (five years for options granted to holders
of more than 10% of the voting stock of the Company). The exercise price of
incentive stock options shall not be less than the fair market value of the
common stock at the date of grant (110% of fair market value for options
granted to holders of more than 10% of the voting stock of the Company).
11
<PAGE>
PCs Compleat, Inc.
Notes to Financial Statements
- --------------------------------------------------------------------------------
Non-qualified stock options may be issued under the Plan at an option price
determined by the Board of Directors.
Stock option activity under the Plan is summarized as follows:
NUMBER OF OPTION PRICE
OPTIONS PER SHARE
Outstanding at December 31, 1994 1,275,884 $0.10 - $0.50
Granted in 1995 459,500 $0.50 - $1.50
Cancelled in 1995 (11,875) $0.10 - $0.35
Exercised in 1995 (43,625) $0.10 - $0.35
---------
Outstanding at December 31, 1995 1,679,884 $0.10 - $1.50
=========
At December 31, 1995, no non-qualified options had been granted under the
Plan, options to purchase 597,359 shares were exercisable and options to
purchase 53,158 shares were available for future grant.
7.COMMITMENTS
The Company leases certain computer equipment under capital leases and office
and warehouse space under operating leases. The future minimum lease
commitments at December 31, 1995, including payments under noncancelable
operating leases which expire at various times through 1997, are as follows:
OPERATING CAPITAL
LEASES LEASES
1996 $ 446,000 $ 367,000
1997 286,000 260,000
1998 133,000 241,000
1999 134,000 231,000
2000 - 191,000
--------- ----------
Total minimum lease payments $ 999,000 1,290,000
=========
Less - amount representing interest (232,000)
----------
Present value of obligations under
capital leases $1,058,000
==========
Total rent expense under noncancelable operating leases was approximately
$306,000 during the year ended December 31, 1995.
12
<PAGE>
PCs Compleat, Inc.
Notes to Financial Statements
- --------------------------------------------------------------------------------
8. RETIREMENT SAVINGS PLAN
The Company has a defined contribution savings plan under Section 401(k) of
the Internal Revenue Code. This plan covers substantially all employees who
meet minimum age and service requirements and allows participants to defer
a portion of their annual compensation on a pre-tax basis. Company
contributions to the plan may be made at the discretion of the Board of
Directors. There were no contributions made to the plan by the Company for
the year ended December 31, 1995.
9. INCOME TAXES
The components of the (benefit) provision for income taxes are as follows:
Year ended
December 31, 1995
Current:
Federal $ 51,000
State 30,000
------------
Total current 81,000
------------
Deferred:
Federal 420,000
State 65,000
------------
Gross deferred expense 485,000
Deferred tax asset valuation allowance
adjustments (1,731,000)
------------
Total deferred benefit (1,246,000)
------------
Total (benefit) provision for income taxes $ (1,165,000)
============
In 1995, the Company realized income tax benefits of $654,000 and $95,000
for the use of federal and state net operating loss carryforwards,
respectively.
13
<PAGE>
PCs Compleat, Inc.
Notes to Financial Statements
- --------------------------------------------------------------------------------
Deferred tax assets (liabilities) consist of the following:
December 31,
1995
Net operating loss carryforwards $ 752,000
Fixed assets 173,000
Reserves 216,000
Other 130,000
----------
Gross deferred tax assets 1,271,000
Deferred advertising (25,000)
----------
Net deferred tax assets $1,246,000
==========
At December 31, 1995, the Company has recorded a deferred tax asset of
$1,246,000 in part reflecting the benefit of $1,835,000 in net operating loss
carryforwards. Realization is dependent on generating sufficient taxable
income prior to expiration of these carryforwards. Although realization is
not assured, management believes it is more likely than not that all of the
deferred tax asset will be realized. The amount of the deferred tax asset
considered realizable, however, could be reduced in the near term if
estimates of future taxable income during the carryforward period are
reduced.
A reconciliation between the amount of reported tax benefit and the amount
computed using the U.S. Federal statutory rate of 35% for 1995 follows:
Year ended
December 31,
1995
Taxes computed at federal
statutory rate $ 461,000
State income taxes, net of
federal tax benefit 79,000
Other 26,000
-----------
566,000
Decrease in valuation allowance (1,731,000)
-----------
$(1,165,000)
===========
14
<PAGE>
PCs Compleat, Inc.
Notes to Financial Statements
- --------------------------------------------------------------------------------
At December 31, 1995, the Company has net operating loss carryforwards
available to reduce future federal taxable income which expire as follows:
YEAR OF
EXPIRATION
2007 $ 537,000
2008 1,298,000
-----------
$ 1,835,000
===========
Ownership changes, as defined in the Internal Revenue Code, resulting from
the Company's Series B preferred stock offering in June 1994, have limited
the amount of net operating loss carryforwards that can be utilized
annually to offset future taxable income. As a result, the amount of these
net operating losses which can be utilized annually is approximately
$988,000 for losses incurred prior to June 1994. Subsequent changes in
ownership could further affect the limitation in future years.
10. EVENTS SUBSEQUENT TO THE DATE OF INDEPENDENT ACCOUNTANTS' REPORT
(UNAUDITED)
On May 30, 1996, the Company consummated a merger with CompUSA Inc.
("CompUSA"). All of the outstanding capital stock of the Company was
exchanged for approximately 3 million shares of CompUSA common stock. The
merger is being treated as a pooling of interests for accounting purposes.
On May 5, 1996, the Company's joint revolving line of credit was amended
(Note 3). The amended agreement provided for borrowings of up to
$20,000,000 and were payable in August 1996. As of June 30, 1996, the
Company cancelled its revolving line of credit and is obtaining working
capital advances, as necessary, from CompUSA. In addition, the company's
inventory credit line agreements with a third party and the financing
division of one of its suppliers (Note 3) were amended to finance up to
$20,000,000 and $6,000,000 of inventory purchases, respectively.
15
<PAGE>
CompUSA INC.
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
On May 30, 1996, pursuant to an Agreement and Plan of Merger, dated as of
May 15, 1996 (the "Merger Agreement"), by and among CompUSA Inc. (the
"Company"), Snowstorm Merger Corp., a wholly-owned subsidiary of the Company
("Sub"), and PCs Compleat, Inc. ("PCs Compleat"), Sub was merged with and into
PCs Compleat (the "Merger").
As a result of the Merger, PCs Compleat became a wholly-owned subsidiary of
the Company. PCs Compleat is engaged in the direct resale of brand-name personal
computers. The Company intends to use the assets of PCs Compleat, consisting
primarily of cash, accounts receivable, inventory, and personal property, plant
and equipment, substantially as previously used.
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 has been canceled and converted into the right to receive
0.18923226893 shares (the "Exchange Ratio") of common stock, par value $0.01 per
share ("CompUSA Common Stock"), of the Company. Pursuant to the terms of the
Merger Agreement, 2,632,717 shares of CompUSA 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 325,413 shares of CompUSA Common Stock.
The following unaudited pro forma 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 shareholders' equity of PCs Compleat
as reported on its balance sheet, will be carried over onto the consolidated
balance sheet of the Company, and no goodwill or other intangible assets will be
created. The Company will include in its consolidated statement of income the
consolidated results of operations of PCs Compleat for the entire fiscal year in
which the effective date of the Merger occurred, and will combine and restate
the Company's results of operations for prior periods to include the reported
consolidated results of operations of PCs Compleat.
The unaudited pro forma consolidated financial information for the respective
periods presented herein should be read in conjunction with the historical
financial information of the Company included in its Annual Report on Form 10-K
for the year ended June 24, 1995.
The unaudited pro forma consolidated financial information is not necessarily
indicative of the financial position or results of operations which actually
would have been attained if the Merger had been consummated as of the beginning
of the earliest period presented. In addition, the pro forma consolidated
results of operations for the thirty-nine weeks ended March 23, 1996 are not
necessarily indicative of the results to be expected for the Company's entire
fiscal year ended June 29, 1996.
16
<PAGE>
CompUSA Inc.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
(in thousands, except per share data)
<TABLE>
<CAPTION>
Thirty-nine Weeks Ended Fiscal Year Ended
------------------------- ----------------------------------------
March 23, March 25, June 24, June 25, June 26,
1996 1995 1995 1994 1993
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Net sales $2,830,937 $2,211,540 $2,935,901 $2,219,457 $1,369,749
Cost of sales and occupancy 2,453,104 1,939,979 2,573,945 1,955,183 1,189,675
---------- ---------- ---------- ---------- ----------
Gross profit 377,833 271,561 361,956 264,274 180,074
Store operating expenses 237,799 195,959 263,654 208,356 123,516
Pre-opening expenses 3,148 1,902 2,454 7,266 6,111
General and administrative expenses 53,467 40,972 54,940 47,963 31,466
Restructuring costs - - - 9,918 -
---------- ---------- ---------- ---------- ----------
Operating income (loss) 83,419 32,728 40,908 (9,229) 18,981
Other expense (income):
Interest expense 9,377 8,919 12,015 12,156 2,256
Other income, net (4,339) (1,486) (2,409) (2,063) (468)
---------- ---------- ---------- ---------- ----------
5,038 7,433 9,606 10,093 1,788
---------- ---------- ---------- ---------- ----------
Income (loss) before income taxes 78,381 25,295 31,302 (19,322) 17,193
Income tax expense (benefit) 30,493 5,651 6,963 (2,298) 7,510
---------- ---------- ---------- ---------- ----------
Net income (loss) $ 47,888 $ 19,644 $ 24,339 $ (17,024) $ 9,683
========== ========== ========== ========== ==========
Income (loss) per common and common
equivalent share $ 1.06 $ 0.48 $ 0.60 $ (0.44) $ 0.25
========== ========== ========== ========== ==========
Weighted average common and common
equivalent shares 45,110 40,823 40,868 38,535 38,291
</TABLE>
17
<PAGE>
CompUSA Inc.
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
(in thousands, except shares)
<TABLE>
<CAPTION>
March 23,
1996
----------
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 295,887
Accounts receivable, net of allowance for doubtful accounts 141,268
Merchandise inventories 442,879
Prepaid expenses and other 14,677
----------
Total current assets 894,711
Property and equipment, net 124,454
Other assets 7,402
----------
$1,026,567
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 505,971
Accrued liabilities 83,924
Credit Agreement borrowings 500
Current portion of capital lease obligations 4,868
----------
Total current liabilities 595,263
Capital lease obligations 5,262
Senior Subordinated Notes 110,000
Deferred income taxes 6,235
Commitments and contingencies -
Stockholders' equity:
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 44,888,285 shares issued at
March 23, 1996 449
Paid-in capital 251,346
Retained earnings 60,841
----------
312,636
Less: Treasury stock, at cost, 189,730 shares at
March 23, 1996 (2,829)
----------
Total stockholders' equity 309,807
----------
$1,026,567
==========
</TABLE>
18
<PAGE>
CompUSA INC.
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
NOTE 1 - GENERAL
Prior to the Merger, PCs Compleat's fiscal year ended on December 31. The
Company's fiscal year is a 52/53-week year ending on the last Saturday of each
June. The unaudited pro forma statements of operations have been prepared by
combining the results of operations of PCs Compleat, prepared on a calendar
quarter basis, with the results of operations of the Company, prepared on the
basis of the Company's fiscal quarters.
Prior to the Merger, the accounting policies of PCs Compleat were consistent,
in all material respects, with those of the Company. As a result, no material
adjustments have been made to conform accounting policies in the preparation of
the unaudited pro forma consolidated financial information.
Certain insignificant reclassifications for both the Company and PCs Compleat
have been reflected in the unaudited pro forma consolidated financial
information to conform financial statement presentations.
Separate and combined results of the Company and PCs Compleat are as follows
(in thousands):
<TABLE>
<CAPTION>
COMPANY PCS COMPLEAT COMBINED
------------------------------------------
<S> <C> <C> <C>
Thirty-nine weeks ended March 23, 1996
Net sales $2,669,985 $160,952 $2,830,937
Net income 45,510 2,378 47,888
Thirty-nine weeks ended March 25, 1995
Net sales $2,123,565 $ 87,975 $2,211,540
Net income 18,666 978 19,644
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)
Fiscal year ended June 26, 1993
Net sales $1,341,985 $ 27,764 $1,369,749
Net income 12,306 (2,623) 9,683
</TABLE>
19
<PAGE>
CompUSA INC.
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION (CONT.)
NOTE 2 - QUARTERLY FINANCIAL DATA
Pro forma consolidated quarterly financial information is as follows:
<TABLE>
<CAPTION>
Thirty-nine weeks ended March 23, 1996
<S> <C> <C> <C> <C>
(in thousands)
First Second Third
Quarter Quarter Quarter
------------ --------- ----------
Net sales $781,978 $983,228 $1,065,731
Cost of sales and occupancy costs 684,090 852,177 916,837
------------- --------- ----------
Gross profit 97,888 131,051 148,894
Store operating expenses 69,905 79,498 88,396
Pre-opening expenses 295 2,630 223
General and administrative expenses 14,737 17,058 21,672
------------- --------- ----------
Operating income 12,951 31,865 38,603
Other expense (income) net 2,661 1,478 899
------------- --------- ----------
Income before income taxes 10,290 30,387 37,704
Income tax expense 4,083 11,639 14,771
------------- --------- ----------
Net income $ 6,207 $ 18,748 $ 22,933
============= ========= ==========
Income per common and common equivalent
share $ 0.15 $ 0.40 $ 0.50
============= ========= ==========
Weighted average common and common
equivalent shares 42,535 46,509 46,287
Fiscal year ended June 24, 1995
(in thousands)
First Second Third Fourth
Quarter Quarter Quarter Quarter
------------- --------- ----------- --------
Net sales $614,097 $791,863 $ 805,580 $724,361
Cost of sales and occupancy costs 540,498 696,616 702,865 633,966
------------- --------- ----------- --------
Gross profit 73,599 95,247 102,715 90,395
Store operating expenses 61,440 65,913 68,606 67,695
Pre-opening expenses 480 705 717 552
General and administrative expenses 12,883 13,874 14,215 13,968
------------- --------- ----------- --------
Operating income (loss) (1,204) 14,755 19,177 8,180
Other expense (income) net 2,354 2,540 2,539 2,173
------------- --------- ----------- --------
Income (loss) before income taxes (3,558) 12,215 16,638 6,007
Income tax expense (benefit) (615) 2,270 3,996 1,312
------------- --------- ----------- --------
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
</TABLE>
20
<PAGE>
EXHIBIT INDEX
Exhibit Number Description
-------------- -----------
2.1 Agreement and Plan of Merger, dated as of May 15,
1996, by and among CompUSA Inc., Snowstorm
Merger Corp., and PCs Compleat, Inc. (1)
23.1 Consent of Price Waterhouse LLP (2)
99.1 Press Release issued by CompUSA Inc.,
dated May 30, 1996 (1)
___________________
(1) - Previously filed as an exhibit to the Company's Form 8-K filed with the
Securities and Exchange Commission on June 14, 1996.
(2) - Filed herewith.
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus
constituting part of the Registration Statement on Form S-3 (No. 333-08715) and
in the Registration Statements on Form S-8, (No. 33-86314, as amended; No. 33-
99280, as amended; No. 33-99282; and No. 333-06235) of CompUSA Inc. of our
report dated March 14, 1996 relating to the financial statements of PCs
Compleat, Inc., which appears in this Current Report on Form 8-K/A of CompUSA
Inc.
/s/ Price Waterhouse LLP
- -------------------------
Price Waterhouse LLP
Boston, MA
July 30, 1996
