<PAGE>
- --------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 29, 1997
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
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
14951 NORTH DALLAS PARKWAY, DALLAS, TEXAS 75240
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (972) 982-4000
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
--- ---
The registrant had 91,242,490 shares of common stock, $.01 per share par
value, outstanding as of April 30, 1997.
- --------------------------------------------------------------------------------
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets at March 29, 1997 (unaudited)
and June 29, 1996........................................... 3
Consolidated Income Statements for the thirteen weeks
and thirty-nine weeks ended March 29, 1997 and
March 23, 1996 (unaudited).................................. 4
Consolidated Statements of Cash Flows for the thirty-nine weeks
ended March 29, 1997 and March 23, 1996 (unaudited)......... 5
Notes to Consolidated Financial Statements (unaudited)........... 6
Separate financial statements relating to the Company's subsidiaries are
omitted since all of them are wholly owned, each has 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.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS................................... 10
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS........................................... 16
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K............................ 16
SIGNATURES............................................................ 17
EXHIBIT 11............................................................ 18
2
<PAGE>
COMPUSA INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except shares)
<TABLE>
<CAPTION>
MARCH 29, JUNE 29,
1997 1996
---------- ---------
(unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................ $ 257,088 $207,614
Accounts receivable, net of allowance
for doubtful accounts of $2,042 and
$1,692 at March 29, 1997 and June 29,
1996, respectively...................... 180,443 148,109
Merchandise inventories................. 625,055 398,841
Prepaid expenses and other.............. 22,722 15,669
---------- --------
Total current assets................. 1,085,308 770,233
Property and equipment, net................. 163,187 131,184
Other assets................................ 9,638 7,920
---------- --------
$1,258,133 $909,337
========== ========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable......................... $ 620,838 $377,774
Accrued liabilities...................... 113,454 82,178
Current portion of capital lease
obligations............................. 3,324 4,382
---------- --------
Total current liabilities............ 737,616 464,334
Capital lease obligations................... 2,848 5,066
Senior Subordinated Notes................... 110,000 110,000
Deferred income taxes....................... 6,828 4,032
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 200,000,000 shares
authorized, with 91,552,191
shares issued at March 29,
1997; 90,215,716 shares
issued at June 29, 1996................. 916 902
Paid-in capital.......................... 258,681 255,216
Retained earnings........................ 143,605 72,616
---------- --------
403,202 328,734
Less: Treasury stock, at cost,
316,627 shares at March 29, 1997
and 379,460 shares at June 29, 1996... (2,361) (2,829)
---------- --------
Total stockholders' equity.................. 400,841 325,905
---------- --------
$1,258,133 $909,337
========== ========
</TABLE>
See accompanying notes.
3
<PAGE>
COMPUSA INC.
CONSOLIDATED INCOME STATEMENTS
(in thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED THIRTY-NINE WEEKS ENDED
--------------------------- ---------------------------
MARCH 29, MARCH 23, MARCH 29, MARCH 23,
1997 1996 1997 1996
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net sales.................................. $1,272,882 $1,065,731 $3,462,015 $2,830,937
Cost of sales and occupancy costs.......... 1,089,902 916,837 2,975,389 2,453,104
---------- ---------- ---------- ----------
Gross profit............................ 182,980 148,894 486,626 377,833
Store operating expenses................... 105,466 88,395 298,218 237,797
Pre-opening expenses....................... 250 223 4,727 3,148
General and administrative expenses........ 23,320 21,673 65,070 53,469
---------- ---------- ---------- ----------
Operating income........................ 53,944 38,603 118,611 83,419
Other expense (income):
Interest expense.......................... 3,102 3,125 9,136 9,376
Other income, net......................... (2,355) (2,227) (5,956) (4,337)
---------- ---------- ---------- ----------
747 898 3,180 5,039
---------- ---------- ---------- ----------
Income before income taxes................. 53,197 37,705 115,431 78,380
Income tax expense......................... 20,482 14,772 44,442 30,492
---------- ---------- ---------- ----------
Net income.............................. $ 32,715 $ 22,933 $ 70,989 $ 47,888
========== ========== ========== ==========
Income per common and common
equivalent share.......................... $ 0.35 $ 0.25 $ 0.75 $ 0.53
========== ========== ========== ==========
Weighted average common and common
equivalent shares......................... 94,450 92,574 94,576 90,221
========== ========== ========== ==========
</TABLE>
See accompanying notes.
4
<PAGE>
COMPUSA INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
THIRTY-NINE WEEKS ENDED
--------------------------
MARCH 29, MARCH 23,
1997 1996
--------- ---------
<S> <C> <C>
Cash flows provided by operating
activities:
Net income................................. $ 70,989 $ 47,888
Adjustments to reconcile
net income to net cash
provided by operating
activities:
Depreciation and amortization......... 25,664 20,061
Deferred income tax................... 920 --
Changes in assets and
liabilities:
Increase in accounts receivable..... (32,334) (37,385)
Increase in merchandise
inventories........................ (226,214) (130,677)
Increase in prepaid expenses
and other assets................... (7,606) (358)
Increase in accounts payable
and accrued liabilities............ 273,608 261,413
--------- ---------
Net cash provided by
operating activities............ 105,027 160,942
Cash flows provided by (used in)
investing activities:
Capital expenditures....................... (56,603) (34,094)
Other...................................... 294 581
--------- ---------
Net cash used in investing
activities...................... (56,309) (33,513)
Cash flows provided by (used in)
financing activities:
Proceeds from issuance of common stock..... 3,447 77,924
Purchase of treasury stock................. -- (3,521)
Sale of treasury stock to benefit plan..... 1,233 812
Borrowings under line of credit
agreements................................ -- 38,500
Repayments of borrowings under line
of credit agreements...................... -- (38,000)
Payments under capital lease
obligations............................... (3,924) (3,751)
--------- ---------
Net cash provided by
financing activities............ 756 71,964
--------- ---------
Net increase in cash and cash
equivalents................................. 49,474 199,393
Cash and cash equivalents at beginning
of period................................... 207,614 96,494
--------- ---------
Cash and cash equivalents at end of
period...................................... $ 257,088 $ 295,887
========= =========
</TABLE>
See accompanying notes.
5
<PAGE>
COMPUSA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. BASIS OF PRESENTATION
The consolidated financial statements include the accounts of CompUSA Inc.
and its wholly owned subsidiaries (collectively, the "Company"). All
significant intercompany accounts and transactions have been eliminated. In the
opinion of management, the accompanying unaudited consolidated financial
statements contain all adjustments, consisting only of normal recurring
adjustments, necessary to present fairly the financial position, results of
operations and cash flows of the Company for the applicable interim periods.
The results of operations for these periods are not necessarily comparable to,
or indicative of, results of any other interim period or for the fiscal year as
a whole.
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and Article
10 of Regulation S-X. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements. Therefore, these financial statements should be read in
conjunction with the Company's Annual Report on Form 10-K for the fiscal year
ended June 29, 1996.
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.
2. EQUITY
Income 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,
treated as common stock equivalents, are calculated using the treasury stock
method.
On November 6, 1996, the Company's Board of Directors declared a two-for-
one common stock split effected in the form of a stock dividend to stockholders
of record as of the close of business on November 18, 1996, payable on December
2, 1996. Stock options and all other agreements payable in the Company's common
stock (the "Common Stock") have been amended to reflect the split. An
amount equal to the par value of shares issued in the split has been transferred
from paid-in capital to the common stock account. All references
to the number of shares of Common Stock issued or outstanding, per share prices,
and income per common and common equivalent share amounts in the consolidated
financial statements and the accompanying notes have been adjusted to reflect
the split on a retroactive basis.
In December 1995, the Company's Board of Directors authorized the purchase
of up to $30.0 million of Common Stock. On December 22, 1995, the Company
purchased 472,400 shares of Common Stock, to be held as treasury stock, at a
weighted average price of $7.44 per share, excluding transaction costs.
On May 24, 1996, the Company's Board of Directors rescinded the
authorization to purchase Common Stock.
6
<PAGE>
COMPUSA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(unaudited)
In February 1996, the Company made a cash contribution to the Company's
defined contribution profit sharing plan to effect the Company's required
contribution to the plan for 1995, which the plan used to purchase 92,940 shares
of treasury stock from the Company. In March 1997, the Company made a cash
contribution to the Company's defined contribution profit sharing plan to effect
the Company's required contribution to the plan for 1996, which the plan used to
purchase 62,833 shares of treasury stock from the Company.
3. 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 consolidated 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.
4. SUBSIDIARY GUARANTEES
The Company's 9 1/2% Senior Subordinated Notes due 2000 (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:
<TABLE>
<CAPTION>
AS OF AND FOR THE
THIRTY-NINE WEEKS ENDED
----------------------------
MARCH 29, MARCH 23,
1997 1996
---------- ---------
(in thousands)
<S> <C> <C>
Intercompany receivables..................... $ 46,871 $ 86,958
Other current assets......................... 445,210 93,750
Noncurrent assets............................ 129,585 2,470
Intercompany payables........................ 45,756 14,292
Other current liabilities.................... 149,169 39,046
Long-term debt and liabilities............... 2,199 803
Net sales.................................... 2,443,100 161,582
Intercompany revenues........................ 153,263 26,572
Costs and expenses........................... 2,377,246 158,851
Intercompany expenses........................ 107,598 --
Net income................................... 68,584 15,553
</TABLE>
In the preparation of the Company's consolidated financial statements, all
intercompany accounts were eliminated. There are no restrictions that limit the
ability of the Company's subsidiaries to declare and pay dividends to the
Company.
7
<PAGE>
COMPUSA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(unaudited)
5. SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
<TABLE>
<CAPTION>
THIRTY-NINE WEEKS ENDED
---------------------------
MARCH 29, MARCH 23,
1997 1996
--------- ---------
(in thousands)
<S> <C> <C>
Cash paid during the periods for:
Interest $ 5,823 $ 6,067
Income taxes 36,537 20,294
Investing activities not affecting cash
are as follows:
Additions to property and
equipment under capital leases $ 648 $ 3,680
</TABLE>
6. NEW ACCOUNTING PRONOUNCEMENTS
In March 1995, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of." 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 was adopted by the Company in the
preparation of its financial statements for the quarter ended September 28,
1996. Adoption of the standard had no impact on the Company's financial
statements.
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 continue to account for stock compensation using
APB Opinion 25 and will adopt the disclosure requirements of SFAS No. 123 in the
preparation of its annual financial statements for the fiscal year ending June
28, 1997, making pro forma disclosures of net income and earnings per share as
if the fair value based method had been applied.
In February 1997, the FASB issued SFAS No. 128, "Earnings per Share," which
the Company is required to adopt in the second quarter of the fiscal year ending
June 27, 1998. At that time, the Company will be required to change the method
currently used to compute earnings per share and to restate all prior periods.
Under the new standard, the Company will be required to disclose both "basic"
and "diluted" earnings per share. In calculating basic earnings per share, the
dilutive effect of stock options will be excluded. Basic earnings per share for
the thirteen weeks ended March 29, 1997 and March 23, 1996 is expected to be
$0.01 per share higher than the earnings per share amounts currently reported
for these periods, while basic earnings per share for the thirty-nine weeks
ended March 29, 1997 and March 23, 1996 is expected to be $0.03 per share higher
than the earnings per share amounts currently reported for these periods. The
Company has not yet determined what the impact of Statement 128 will be on the
calculation of diluted earnings per share.
8
<PAGE>
COMPUSA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(unaudited)
7. CREDIT AGREEMENT
Effective December 30, 1996, the Company entered into a new, three-year
unsecured revolving credit agreement (the "Credit Agreement") with a consortium
of fourteen banks that provides for borrowings and letters of credit up
to a maximum of $150,000,000, with letters of credit not to exceed
$75,000,000 in the aggregate. The Credit Agreement replaces the previous
$75,000,000 unsecured credit agreement. The funds available under the Credit
Agreement may be used for any corporate purpose, including purchasing or
redeeming the Senior Subordinated Notes in part or in full. At March 29, 1997,
no amounts were outstanding under the Credit Agreement. At March 29, 1997, the
Company had approximately $149,000,000 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 (8.5% per annum as of March 29, 1997) or a rate
based on the London Interbank Offering Rate (LIBOR) ranging from 5.8% to 5.9% as
of March 29, 1997, plus a specified margin, currently 0.75%. The Company also
pays certain commitment and agent fees. The Company has the annual option to
extend the Credit Agreement for an additional year with the banks' approval.
The Credit Agreement requires the maintenance of certain financial ratios
and tangible net worth. The Credit Agreement also imposes limitations on mergers
and consolidations and prohibits the purchase of Common Stock in excess of
$30,000,000 and the payment of dividends (other than stock dividends). The
Credit Agreement allows the Company to securitize up to $100,000,000 of certain
assets. The indebtedness under the Credit Agreement is guaranteed on a full,
unconditional, and joint and several basis by all subsidiaries of the Company.
9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
CAUTIONARY STATEMENT REGARDING RISKS AND UNCERTAINTIES THAT MAY AFFECT FUTURE
RESULTS
This Quarterly Report on Form 10-Q 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
Quarterly Report on Form 10-Q, the words "believes," "estimates," "plans,"
"expects," "anticipates," and similar expressions as they relate to the Company
or its management are intended to identify forward-looking statements.
GENERAL
All references herein to "fiscal 1997" relate to the fifty-two weeks ending
June 28, 1997, references to "fiscal 1996" relate to the fifty-three weeks ended
June 29, 1996, and references to "fiscal 1995" relate to the fifty-two weeks
ended June 24, 1995. In addition, all references herein to "third quarter of
fiscal 1997" and "first nine months of fiscal 1997" relate to the thirteen weeks
and thirty-nine weeks, respectively, ended March 29, 1997 and all references to
"third quarter of fiscal 1996" and "first nine months of fiscal 1996" relate to
the thirteen weeks and thirty-nine weeks, respectively, ended March 23, 1996.
The following table sets forth certain operating data for the Company:
<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED THIRTY-NINE WEEKS ENDED
------------------------- -------------------------
MARCH 29, MARCH 23, MARCH 29, MARCH 23,
1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Stores open at end of period...................... 123 96 123 96
Stores opened during the period................... 1 1 18 11
Stores relocated during the period................ -- -- -- 1
Average net sales per gross square foot (1)....... $372 $ 382 $1,061 $1,104
Comparable store sales increase (2)............... 5.6% 14.1% 4.6% 13.6%
</TABLE>
- -------------
(1) The above average net sales per gross square foot amounts for fiscal 1996
have been restated from the amounts previously disclosed. The restated
amounts above have been calculated based on sales for the thirteen and
thirty-nine weeks ended March 30, 1996 in order to facilitate a more
meaningful comparison to the thirteen and thirty-nine weeks ended March 29,
1997. The above amounts are calculated using net sales of the Company's
stores (including sales of the Company's national accounts group but
excluding sales of PCs Compleat, Inc., the Company's mail-order subsidiary)
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 the thirteen and thirty-nine weeks ended March
23, 1996 were $390 and $1,100, respectively.
(Notes continued on following page)
10
<PAGE>
(Notes continued from previous page)
(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 the period, as well as net sales of the
Company's national accounts group. Comparable store sales exclude net
sales of PCs Compleat, Inc., the Company's mail-order subsidiary. The
comparable store sales increase for the third quarter of fiscal 1997 has
been calculated by comparing net sales for the thirteen weeks ended March
29, 1997 with net sales for the thirteen weeks ended March 30, 1996. The
comparable store sales increase for the first nine months of fiscal 1997
has been calculated by comparing net sales for the thirty-nine weeks ended
March 29, 1997 with net sales for the thirty-nine weeks ended March 30,
1996.
In addition to stores opened in new markets, the Company has opened
Computer Superstores/SM/ 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.
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:
<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED THIRTY-NINE WEEKS ENDED
------------------------- -------------------------
MARCH 29, MARCH 23, MARCH 29, MARCH 23,
1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales...................................... 100.0% 100.0% 100.0% 100.0%
Cost of sales and occupancy costs.............. 85.6 86.0 85.9 86.7
----- ----- ----- -----
Gross profit................................... 14.4 14.0 14.1 13.3
Store operating expenses....................... 8.3 8.3 8.6 8.4
Pre-opening expenses........................... 0.1 0.1 0.2 0.1
General and administrative expenses............ 1.8 2.0 1.9 1.9
----- ----- ----- -----
Operating income............................... 4.2 3.6 3.4 2.9
Interest expense and other income, net......... -- 0.1 0.1 0.1
----- ----- ----- -----
Income before income taxes..................... 4.2 3.5 3.3 2.8
Income tax expense............................. 1.6 1.3 1.2 1.1
----- ----- ----- -----
Net income..................................... 2.6% 2.2% 2.1% 1.7%
===== ===== ===== =====
</TABLE>
11
<PAGE>
THIRD QUARTER ENDED MARCH 29, 1997, COMPARED WITH THE THIRD QUARTER ENDED MARCH
23, 1996.
Net sales for the third quarter of fiscal 1997 increased 19.4% to $1.27
billion from $1.07 billion for the third quarter of fiscal 1996. The increase
in net sales was primarily due to the additional sales volume attributable to
the new stores opened subsequent to the third quarter of fiscal 1996 and an
increase in comparable store sales of 5.6%. Comparable store sales increased
5.6% despite the opening of Computer Superstores in existing markets, which
resulted in the diversion of sales from existing stores.
Gross profit was $183 million, or 14.4% of net sales, in the third quarter
of fiscal 1997, compared with $149 million, or 14.0% of net sales, in the third
quarter of fiscal 1996. The increase in gross profit as a percentage of net
sales was primarily due to higher product margin and an increase in the ratio of
service revenues to total revenues. Service revenues typically have higher
gross margins than merchandise sales. The increase in gross profit described
above was partially offset by an increase in occupancy costs related to the
opening of 27 additional Computer Superstores since the end of the third
quarter of fiscal 1996.
Store operating expenses were $105.5 million, or 8.3% of net sales, in the
third quarter of fiscal 1997, compared with $88.4 million, or 8.3% of net sales,
in the third quarter of fiscal 1996. During the third quarter of fiscal 1997,
advertising expense decreased as a percentage of net sales and other store
operating expenses increased as a percentage of net sales. The decrease in
advertising expense as a percentage of net sales resulted from increased vendor
participation. Other store operating expenses increased as a percentage of net
sales primarily due to the increases in both new store net sales and service
revenues as percentages of net sales. The increases in new store net sales and
service revenues as percentages of net sales had the effect of increasing other
store operating expenses as percentages of net sales because of the following
factors: (1) other store operating expenses in general, and store personnel
expenses in particular, generally constitute a higher percentage of net sales
for less mature stores because of the lower sales volumes generated by less
mature stores and (2) other store operating expenses are generally higher for
service revenues than for merchandise sales.
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 the third quarter of fiscal 1997, the Company
incurred $250,000 in pre-opening expenses in connection with the opening of one
store, compared with $223,000 in pre-opening expenses incurred in the third
quarter of fiscal 1996 in connection with the opening of one store.
General and administrative expenses were $23.3 million, or 1.8% of net
sales, in the third quarter of fiscal 1997, compared with $21.7 million, or 2.0%
of net sales, in the third quarter of fiscal 1996. General and administrative
expenses in the third quarter of fiscal 1996 included a charge of approximately
$2.0 million relating to discussions undertaken during the quarter regarding the
Company's possible purchase of Tandy Corporation's Computer City division. These
discussions were terminated in February 1996. Excluding this charge in the third
quarter of fiscal 1996, general and administrative expenses in the third quarter
of fiscal 1997 remained relatively constant as a percentage of net sales.
Interest expense and other income, net, of $0.7 million in the third
quarter of fiscal 1997 remained relatively constant compared with $0.9 million
in the third quarter of fiscal 1996. See "-Liquidity and Capital Resources."
The Company's effective tax rate for the third quarter of fiscal 1997 was
38.5%, compared with an effective tax rate of 39.2% for the third quarter of
fiscal 1996. The effective tax rate differed in fiscal 1996 and fiscal 1997
from the federal statutory rate primarily due to state income taxes partially
offset by tax exempt interest income.
12
<PAGE>
As a result of the above, net income for the third quarter of fiscal 1997
was $32.7 million, or $.35 per share, compared with net income of $22.9 million,
or $.25 per share, for the third quarter of fiscal 1996.
NINE MONTHS ENDED MARCH 29, 1997, COMPARED WITH THE NINE MONTHS ENDED MARCH 23,
1996
Net sales for the first nine months of fiscal 1997 increased 22.3% to $3.46
billion from $2.83 billion for the first nine months of fiscal 1996. The
increase in net sales was due to the additional sales volume attributable to the
new stores opened during and subsequent to the first nine months of fiscal 1996
and an increase in comparable store sales of 4.6%. Comparable store sales
increased 4.6% despite the opening of Computer Superstores in existing markets,
which resulted in the diversion of sales from existing stores.
Gross profit was $487 million, or 14.1% of net sales, in the first nine
months of fiscal 1997, compared with $378 million, or 13.3% of net sales, in the
first nine months of fiscal 1996. The increase in gross profit as a percentage
of net sales was primarily due to higher product margin and an increase in the
ratio of service revenues to total revenues. Service revenues typically have
higher gross margins than merchandise sales. The increase in gross profit
described above was partially offset by an increase in occupancy costs related
to the opening of 27 additional Computer Superstores since the end of the
third quarter of fiscal 1996.
Store operating expenses were $298.2 million, or 8.6% of net sales, in the
first nine months of fiscal 1997, compared with $237.8 million, or 8.4% of net
sales, in the first nine months of fiscal 1996. During the first nine months of
fiscal 1997, advertising expense decreased as a percentage of net sales and
other store operating expenses increased as a percentage of net sales. The
decrease in advertising expense as a percentage of net sales resulted from
increased vendor participation. Other store operating expenses increased as a
percentage of net sales primarily due to the increases in both new store net
sales and service revenues as percentages of net sales. The increase in new
store net sales and service revenues as percentages of net sales had the effect
of increasing other store operating expenses as percentages of net sales because
of the following factors: (1) other store operating expenses in general, and
store personnel expenses in particular, generally constitute a higher percentage
of net sales for less mature stores because of the lower sales volumes generated
by the less mature stores and (2) other store operating expenses are generally
higher for service revenues than for merchandise sales.
In the first nine months of fiscal 1997, the Company incurred $4.7 million
in pre-opening expenses in connection with the opening of 18 stores, compared
with $3.1 million in pre-opening expenses incurred in the first nine months of
fiscal 1996 in connection with the opening of 11 new stores, the relocation of
one store and the opening of two Training Supercenter Plus/SM/ locations.
General and administrative expenses of $65.1 million, or 1.9% of net sales,
for the first nine months of fiscal 1997 remained relatively constant as a
percentage of net sales compared with $53.5 million, or 1.9% of net sales, for
the first nine months of fiscal 1996.
Interest expense and other income, net, was $3.2 million in the first nine
months of fiscal 1997, compared with $5.0 million in the first nine months of
fiscal 1996. This decrease is attributable to increased other income related to
higher investment levels during the first nine months of fiscal 1997. See "-
Liquidity and Capital Resources."
The Company's effective tax rate for the first nine months of fiscal 1997
was 38.5%, compared with an effective tax rate of 38.9% for the first nine
months of fiscal 1996. The difference between the effective tax rate in fiscal
1996 and fiscal 1997 and the federal statutory rate is primarily due to state
income taxes partially offset by tax exempt interest income.
13
<PAGE>
As a result of the above, net income for the first nine months of fiscal
1997 was $71.0 million, or $0.75 per share, compared with net income of $47.9
million, or $0.53 per share, for the first nine months of fiscal 1996.
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.
LIQUIDITY AND CAPITAL RESOURCES
At March 29, 1997, total assets were $1.26 billion, $1.09 billion of which
were current assets, including $257 million of cash and cash equivalents. Net
cash provided by operating activities for the first nine months of fiscal 1997
was $105 million. Net cash provided by operating activities during the first
nine months of fiscal 1997 was primarily attributable to the net income
generated during the period.
Approximately three-fourths of the Company's net sales during the first
nine months of both fiscal 1997 and fiscal 1996 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.
Merchandise inventories increased to $625 million at March 29, 1997 from
$399 million at June 29, 1996. The increase in merchandise inventories is
primarily attributable to inventories at the 18 stores opened in the first nine
months of fiscal 1997, higher inventories held by the Company's configuration
center, as well as inventories received in anticipation of promotional sales to
be held in the fourth quarter of fiscal 1997.
Capital expenditures during the first nine months of fiscal 1997 were $56.6
million, of which $15.3 million were for fiscal 1997 new stores and $18.5
million were for existing stores, compared with $34.1 million of capital
expenditures during the first nine months of fiscal 1996, of which $12.2 million
were for fiscal 1996 new stores and $11.2 million were for existing stores.
During fiscal 1997, the Company plans to open approximately 25 new Computer
Superstores and anticipates total capital expenditures of approximately $65.0 to
$70.0 million. 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. The Company believes its
available cash and cash equivalents and vendor and bank financing are sufficient
to satisfy its short-term capital requirements.
The Company has an unsecured $150 million credit agreement (the "Credit
Agreement") with a consortium of banks that expires in December 1999. The
Credit Agreement requires the maintenance of certain financial ratios and
restricts, among other things, the Company's ability to incur additional
indebtedness. However, the Credit Agreement allows the Company to securitize up
to $100 million of certain assets. See Note 7 of Notes to Consolidated Financial
Statements. At March 29, 1997, no amounts were outstanding under the Company's
Credit Agreement. At March 29, 1997, the Company had approximately $149 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.
14
<PAGE>
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.
15
<PAGE>
PART II
ITEM 1. LEGAL PROCEEDINGS
Note 3 of the Notes to Consolidated Financial Statements in Item 1 is
incorporated herein by reference as if fully restated herein. Note 3 contains
forward-looking statements that are subject to the risks and uncertainties
discussed in Item 2 - "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Cautionary Statement Regarding Risks and
Uncertainties That May Affect Future Results."
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits:
3.1 Restated and Amended Certificate of Incorporation. (1)
3.2 Restated and Amended Bylaws. (2)
11 Computation of Income per Common and Common Equivalent Share. (3)
27 Financial Data Schedule. (3) (4)
(b) Reports on Form 8-K.
None.
- -----------------------------
(1) Previously filed as an exhibit to the Company's Registration Statement
No. 1-11566 on Form 8-A/A filed December 6, 1996, as amended and
incorporated herein by reference.
(2) 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.
(3) Filed herewith.
(4) Included with EDGAR version only.
16
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CompUSA Inc.
Date: May 9, 1997 By: /s/ James E. Skinner
----------------------------------
James E. Skinner
Executive Vice President, Chief
Financial Officer and Treasurer
(Principal Financial and
Accounting Officer)
17
<PAGE>
EXHIBIT 11
COMPUSA INC.
COMPUTATIONS OF
INCOME PER COMMON AND COMMON EQUIVALENT SHARE
(in thousands, except per share data)
<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED THIRTY-NINE WEEKS ENDED
------------------------- -------------------------
MARCH 29, MARCH 23, MARCH 29, MARCH 23,
1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Common shares issued at beginning
of period................................. 91,384 89,493 90,216 80,932
Weighted average number of common
shares issued during the period........... 94 222 824 5,953
Weighted average treasury shares........... (368) (448) (375) (152)
Incremental shares related to assumed
exercise of stock options................. 3,340 3,307 3,911 3,488
------- ------- ------- -------
Weighted common and common equivalent
shares.................................... 94,450 92,574 94,576 90,221
======= ======= ======= =======
Net income................................. $32,715 $22,933 $70,989 $47,888
======= ======= ======= =======
Income per common and common equivalent
share (1)................................. $ 0.35 $ 0.25 $ 0.75 $ 0.53
======= ======= ======= =======
</TABLE>
- ----------------
(1) The computation of income per common share on a fully diluted basis does not
materially differ from the amounts calculated on a primary basis shown
above.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S UNAUDITED FINANCIAL STATEMENTS AS OF AND FOR THE THIRTY-NINE WEEKS
ENDED MARCH 29, 1997, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-28-1997
<PERIOD-START> JUN-30-1996
<PERIOD-END> MAR-29-1997
<CASH> 257,088
<SECURITIES> 0
<RECEIVABLES> 182,485
<ALLOWANCES> (2,042)
<INVENTORY> 625,055
<CURRENT-ASSETS> 1,085,308
<PP&E> 254,817
<DEPRECIATION> (91,630)
<TOTAL-ASSETS> 1,258,133
<CURRENT-LIABILITIES> 737,616
<BONDS> 110,000
0
0
<COMMON> 916
<OTHER-SE> 399,925
<TOTAL-LIABILITY-AND-EQUITY> 1,258,133
<SALES> 3,462,015
<TOTAL-REVENUES> 3,462,015
<CGS> 2,975,389
<TOTAL-COSTS> 2,975,389
<OTHER-EXPENSES> 368,015
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9,136
<INCOME-PRETAX> 115,431
<INCOME-TAX> 44,442
<INCOME-CONTINUING> 70,989
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 70,989
<EPS-PRIMARY> 0.75
<EPS-DILUTED> 0.75
</TABLE>
