COMPUSA INC, 10-K, 1997-09-23

COMPUSA INC
10-K, 1997-09-23
COMPUTER & COMPUTER SOFTWARE STORES

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

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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 28, 1997

[_]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
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COMPUSA INC.

(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

DELAWARE 75-2261497
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER 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:

<TABLE>
<CAPTION>
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
------------------- ---------------------
<S> <C>
Common Stock, $.01 per share par value New York Stock Exchange
9 1/2% Senior Subordinated Notes Due 2000 New York Stock Exchange
</TABLE>

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 8, 1997 was $1,598,111,313. 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 91,844,120 shares of common stock, $.01 per share par
value, outstanding as of September 8, 1997.

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 5, 1997 are incorporated by
reference into Part III of this Report.

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TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
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<S> <C>
PART I
Item 1. Business........................................................ 1
Item 2. Properties...................................................... 7
Item 3. Legal Proceedings............................................... 8
Item 4. Submission of Matters to a Vote of Security Holders............. 8
PART II
Item 5. Market for the Company's Common Equity and Related Stockholder
Matters......................................................... 9
Item 6. Selected Financial Data......................................... 10
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations........................................... 11
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
</TABLE>
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PART I

ITEM 1. BUSINESS

CompUSA Inc. ("CompUSA" or the "Company") is one of the leading retailers 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, and education 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 8, 1997, the Company
operated 134 Computer Superstores in 61 metropolitan areas in 37 states. In
fiscal 1997, the Company's stores averaged approximately 27,000 square feet
and achieved average sales per square foot of $1,388. The Company plans to
open 30 to 40 Computer Superstores in fiscal 1998. In addition, the Company
will begin to test a "small market" store concept in fiscal 1998 by opening a
limited number of stores ranging from 6,000 to 15,000 square feet in markets
with populations of approximately 40,000 to 150,000 people.

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, the operations of which were fully
integrated into the Company's direct mail operations and became a part of the
Company's "CompUSA Direct" division in August 1997. CompUSA Direct operates a
distribution and configuration facility with integrated telephone, computer,
and distribution systems.

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 and software and
related products and accessories 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 types of 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; certain business
machines, such as facsimile machines, video conferencing equipment, and other
related equipment and supplies; and certain consumer electronics products,
such as digital cameras, hand-held personal computers, pagers, cellular
phones, calculators, and virtual reality accessories. Major vendors include
Apple, Canon, Compaq, Epson, Hewlett-Packard, IBM, Maxtor, NEC Technologies,
Packard Bell/NEC, Sony, Texas Instruments, Toshiba, and 3-Com.

In July 1997, the Company announced plans to introduce the "CompUSA PC(TM)"
brand of desktop model personal computers. CompUSA PC products are
manufactured by multiple third-party manufacturers and built to customers'
specifications. Customers are able to place their orders through the Company's
Computer Superstores as well as through CompUSA Direct, using the Company's
toll-free telephone number, 1-800-COMPUSA, or its

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web site, www.compusa.com. Upon manufacture, the personal computers are
shipped directly to the customers from the manufacturer. The Company began
selling CompUSA PC products in the first quarter of fiscal 1998.

The Company has sold and continues, on a limited basis, to sell 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.

SOFTWARE. The Company sells over 2,000 different software packages in the
business and personal productivity, entertainment, education, utility,
language, and reference categories. Major vendors include Broderbund, Claris,
Disney, Electronic Arts, IBM, Intuit, Microsoft, Netscape, Novell, and
Symantec.

ACCESSORIES. Accessories sold by the Company include a broad range of
personal computer-related items and supplies such as peripherals, CD ROM
drives, sound cards, media storage devices, and other computer-related
supplies. Major vendors include 3M, Avery, Belkin, Curtis, Daisytek, Fellowes,
Gemini, Hewlett-Packard, Iomega, Kensington, Microsoft, and Sony.

DIRECT SALES

The Company believes that its presence in 61 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 from the on-hand inventories in its Computer
Superstores, from its 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), from
CompUSA Direct's distribution and configuration facility in Marlborough,
Massachusetts, and, with respect to its CompUSA PC brand, from third-party
manufacturers' facilities.

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 on the basis of overall
merchandise selection, pricing, and service along with the availability of
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.

More than 6,500 products from over 60 vendors have been approved by the
federal 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 also sells to government
customers via the federal procurement card (IMPAC), electronic order placement
via the Internet, and state, county, and city contracts. The Company is also
an approved training and service vendor on the GSA schedule.

To address the needs of its government and education customers, CompUSA
assigns an account manager to each of its government and education accounts.
In addition to product purchases, schools can contract with

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CompUSA for technical services including upgrades, network design,
maintenance, and telephone help desk support, as well as computer training
courses for students, faculty, and administration.

MAIL ORDER. CompUSA Direct 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. The mission of CompUSA Direct is to
provide its customers with the broad product selection of the Company's
Computer Superstores, the value and convenience of a direct marketer, and
superior service. CompUSA Direct's mail order fulfillment is carried out
through its 55,000 square foot distribution and configuration facility in
Marlborough, Massachusetts, while advertising and merchandising functions are
centralized at CompUSA's corporate headquarters.

CompUSA Direct also maintains its central call center for telephone orders
at the Marlborough, Massachusetts facility. By dialing 1-800-COMPUSA toll-
free, customers nationwide can order from a selection of more than 50,000
personal computers and related products. CompUSA Direct customers can pick up
orders, return and exchange purchases, and receive technical service at any
CompUSA Computer Superstore nationwide. CompUSA Direct also provides
convenient and affordable delivery and installation, as well as custom
configuration. In addition, CompUSA Direct customers receive toll-free
technical support.

CompUSA mail order customers can also place orders via the Internet by
visiting the CompUSA web site, located at www.compusa.com. Featuring a
"virtual Computer Superstore," the CompUSA web site offers an extensive
product catalog, information about CompUSA, and links to vendor web sites.

Substantially all of CompUSA's advertisements, including its color
circulars, feature the Company's toll-free telephone number, 1-800-COMPUSA,
and its web site, www.compusa.com. The Company advertises major brands of
personal computer hardware, software, accessories, and supplies, as well as
its training and technical services, in computer journals, magazines,
catalogs, and many other publications.

SERVICES

TRAINING. The Company offers training for customers in each of its
businesses. Classroom facilities are located in Training Supercenters(SM) in all
of the Company's Computer Superstores. 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 400 classrooms in or adjacent to
its stores. Most classrooms accommodate 12 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 on new technology as well as instructional skills
development. The Company also operates four stand-alone Training Supercenter
Plus(SM) locations, with one in each of the Boston, Dallas, Los Angeles, and
Seattle markets. The Training Supercenter Plus locations focus on delivering
vendor authorized advanced technology software training. In addition, the
Company provides training at customers' facilities and other off-site
locations.

The Company offers classroom training for all popular software applications,
including networking and the Internet. In addition, the Company offers
computer-based training and computerized skills assessment as well as training
delivered via satellite and the Internet. The Company also offers project
management services to aid the registration of students and reporting of
training classes completed.

TECHNICAL SERVICES. The Company provides its customers with numerous
technical services. Services provided at each location include computer
upgrades, custom configurations, networking, diagnostic testing, maintenance,
repair, and delivery and installation. The Company also performs repairs for
third-party service centers and extended service plan providers under national
service agreements. The Company is a vendor-authorized service provider for
Apple, Compaq, Epson, Hewlett-Packard, IBM, Microsoft, NEC Technologies,
Novell, Packard Bell/NEC, Toshiba, and other leading manufacturers.

3
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In addition to the technical services departments in its Computer
Superstores, the Company has outbound technical support and CompUSA Integrated
Services ("CIS") teams in 20 major markets. These CIS teams are designed to
provide on-site services for corporate, government, and education customers.
Services include product consultation, evaluation, network design, system
configuration, installation, testing, upgrades, maintenance, and repairs.
Other CIS team support functions include telephone help-desk services, on-site
technicians, inventory control, asset management, customized training, and 24-
hour emergency response. The Company also sells various extended service
contracts that are administered and insured by an independent third party.
Hardware customers may call the Company for technical support at no charge for
the first 30 days after purchase. Technical services are also available by
telephone to the general public on a per-minute fee basis.

PURCHASING, 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 distribution and configuration
facility, CompUSA Direct's distribution and configuration 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 1997,
purchases of products manufactured by each of Hewlett-Packard Company and
Compaq Computer Corporation constituted in excess of 10% of the Company's
aggregate purchases for the year.

Components used in the CompUSA PC brand personal computers are purchased by
the third-party manufacturers engaged by the Company from vendors approved by
CompUSA. Component and spare parts inventories are maintained at the third
party manufacturers' facilities. Because these personal computers are built to
customers' specifications, no significant inventory of finished products is
maintained.

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 1997, the Company turned its inventory 7.2
times. A reduction in, or the discontinuation of, current vendor practices
related to price protection, stock balancing privileges, and other return
privileges, or a significant decline in the Company's inventory turnover rate,
could expose the Company to product obsolescence risks that could have a
material adverse effect on the Company.

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 to corporations and individual
consumers through its own private label credit card program, which is provided
by

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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 specified 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 13 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, 1997, the Company employed 10,547 full-time and
3,704 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; (viii) office automation
and the reengineering of the workplace; and (ix) the integration of personal
computers into the educational curricula for students at all grade levels. 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, schools, 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 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.

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The Company believes that the major competitive factors in its business
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," "CompUSA
Direct," and "CompUSA PC." The Company has been issued registrations for
"CompUSA," "CompUSA Direct," "Compudyne," "PCs Compleat," and several other
marks and has applied in the United States for registrations for several other
trademarks and service marks, including "CompUSA PC." 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
tradenames 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
tradenames.

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ITEM 2. PROPERTIES

At September 8, 1997 the Company operated 134 Computer Superstores in 61
metropolitan areas in the 37 states listed below.

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NUMBER
STATE OF STORES
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<S> <C>
Alabama................. 1
Alaska.................. 1
Arizona................. 3
California.............. 24
Colorado................ 4
Connecticut............. 2
Delaware................ 1
Florida................. 8
Georgia................. 4
Idaho................... 1
Illinois................ 4
Indiana................. 1
Iowa.................... 1
Kansas.................. 1
Louisiana............... 1
Maryland................ 4
Massachusetts........... 4
Michigan................ 4
Minnesota............... 4
</TABLE>
<TABLE>
<CAPTION>
NUMBER
STATE OF STORES
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<S> <C>
Missouri................ 1
Nevada.................. 1
New Hampshire........... 1
New Jersey.............. 4
New Mexico.............. 1
New York................ 8
North Carolina.......... 2
Ohio.................... 6
Oklahoma................ 2
Oregon.................. 2
Pennsylvania............ 4
Rhode Island............ 1
Tennessee............... 2
Texas................... 15
Utah.................... 1
Virginia................ 5
Washington.............. 3
Wisconsin............... 2
</TABLE>

All but one of the Company's stores are leased or subleased by the Company
with lease terms expiring between 1997 and 2017. 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 196,000 square feet of leased
space. The initial lease term for the Company's headquarters has approximately
six 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 427,000 square feet and is subject to leases expiring
at various dates through 2003. See Note 6 of Notes to Consolidated Financial
Statements.

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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 circumstances change 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 1997.

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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 splits declared by
the Company's Board of Directors effective April 8, 1996 and November 18,
1996:

<TABLE>
<CAPTION>
FISCAL YEAR HIGH LOW
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<S> <C> <C>
1996
First Quarter.............................................. $10.97 $ 7.31
Second Quarter............................................. $10.97 $ 7.22
Third Quarter.............................................. $12.56 $ 6.44
Fourth Quarter............................................. $23.81 $12.00
1997
First Quarter.............................................. $26.75 $15.50
Second Quarter............................................. $30.88 $18.38
Third Quarter.............................................. $20.88 $13.88
Fourth Quarter............................................. $23.38 $15.75
</TABLE>

At September 8, 1997, there were 1,518 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 Company's
bank credit agreement prohibit the payment of dividends on the Common Stock.
See Note 7 of Notes to Consolidated Financial Statements. In addition, the
terms of the Company's 9 1/2% Senior Subordinated Notes due 2000 (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.

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ITEM 6. SELECTED FINANCIAL DATA

The following table sets forth selected consolidated financial and operating
data for the periods from June 26, 1993 through June 28, 1997. 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.

<TABLE>
<CAPTION>
FISCAL YEAR ENDED
----------------------------------------------------------
JUNE 28, JUNE 29, JUNE 24, JUNE 25, JUNE 26,
1997 1996(1) 1995 1994 1993
---------- ---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA AND SELECTED
OPERATING DATA)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales............... $4,610,523 $3,829,786 $2,935,901 $2,219,457 $1,369,749
Cost of sales and
occupancy costs........ 3,953,407 3,311,682 2,573,945 1,955,183 1,189,675
---------- ---------- ---------- ---------- ----------
Gross profit............ 657,116 518,104 361,956 264,274 180,074
Store operating
expenses............... 401,722 328,344 263,654 208,356 123,516
Pre-opening expenses.... 6,220 5,466 2,454 7,266 6,111
General and
administrative
expenses............... 92,183 75,488 54,940 47,963 31,466
Transaction costs
related to Merger(2)... -- 3,453 -- -- --
Restructuring costs..... -- -- -- 9,918 --
---------- ---------- ---------- ---------- ----------
Operating income
(loss)................. 156,991 105,353 40,908 (9,229) 18,981
Interest expense........ 12,229 12,487 12,015 12,156 2,256
Other income, net....... (7,900) (6,983) (2,409) (2,063) (468)
---------- ---------- ---------- ---------- ----------
Income (loss) before
income taxes........... 152,662 99,849 31,302 (19,322) 17,193
Income tax expense
(benefit).............. 58,776 40,184 6,963 (2,298) 7,510
---------- ---------- ---------- ---------- ----------
Net income (loss)....... $ 93,886 $ 59,665 $ 24,339 $ (17,024) $ 9,683
========== ========== ========== ========== ==========
Income (loss) per common
and common equivalent
share(3)............... $ 0.99 $ 0.65 $ 0.30 $ (0.22) $ 0.13
========== ========== ========== ========== ==========
Weighted average number
of shares
outstanding(3)......... 94,589 91,220 81,736 77,070 76,582
SELECTED OPERATING DATA:
Stores open at end of
period................. 129 105 85 76 48
Average net sales per
gross square
foot(4)(6)............. $ 1,388 $ 1,422 $ 1,336 $ 1,268 $ 1,458
Total gross square
footage at end of
period................. 3,500,500 2,850,000 2,254,500 1,965,200 1,197,600
Percentage increase in
comparable store
sales(5)(6)............ 5.9% 12.6% 10.3% 9.0% 20.8%
BALANCE SHEET DATA:
Working capital......... $ 363,963 $ 305,899 $ 190,128 $ 210,018 $ 216,205
Total assets............ 1,124,592 909,337 641,329 522,501 449,399
Long-term debt,
excluding current
portion................ 112,458 115,066 115,153 153,292 115,716
Stockholders' equity.... 427,967 325,905 186,704 160,372 163,869
</TABLE>
- --------
(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 28, 1997 contained
fifty-two weeks. The Company's fiscal year ended June 29, 1996 contained
fifty-three weeks. The fiscal years ended June 24, 1995, June 25, 1994,
and June 26, 1993 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) 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 splits declared by the Company's
Board of Directors effective April 8, 1996 and November 18, 1996, and the
issuance of shares in connection with the Company's acquisition of PCs
Compleat.

10
<PAGE>

(4) 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 the fiscal year ended
June 29, 1996 has been calculated on the basis of a fifty-two week fiscal
year.
(5) 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 1997 has been calculated by comparing net sales for
the fifty-two weeks ended June 28, 1997 with net sales for the fifty-two
weeks ended June 29, 1996. 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.
(6) Net sales for purposes of the calculations in footnotes (4) and (5) above
are comprised of net sales generated from the Company's stores, as well as
sales of the Company's national accounts group, but exclude the sales of
PCs Compleat.

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. The Company's recent entry into the build-
to-order market with its CompUSA PC brand personal computers involves
significant additional risks, including without limitation failure to achieve
customer acceptance of the new products and substantial dependence on third
parties for product quality and reliability and timely fulfillment of customer
orders. All of the foregoing 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

All references herein to "fiscal 1997" relate to the fifty-two weeks ended
June 28, 1997. References to "fiscal 1998" relate to the fifty-two weeks
ending June 27, 1998, 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.

The following table sets forth certain operating data for the Company:

<TABLE>
<CAPTION>
FISCAL YEAR
----------------------
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Stores open at end of the year....................... 129 105 85
Stores opened during the year........................ 24 20 9
Stores relocated during the year..................... -- 1 2
Average net sales per gross square foot(1)(3)........ $1,388 $1,422 $1,336
Comparable store sales increase(2)(3)................ 5.9% 12.6% 10.3%
</TABLE>

- --------
(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

11
<PAGE>

increase for fiscal 1997 has been calculated by comparing net sales for the
fifty-two weeks ended June 28, 1997 with net sales for the fifty-two weeks
ended June 29, 1996. 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.
(3) Net sales for purposes of the above calculations are comprised of net
sales generated from the Company's stores, as well as sales of the
Company's national accounts group, but exclude the sales of PCs Compleat.

Average net sales per gross square foot declined during fiscal 1997 compared
with fiscal 1996, primarily due to new store openings. In fiscal 1997, net
sales of new stores comprised a higher proportion of the Company's total net
sales than in fiscal 1996. New stores typically have lower net sales per gross
square foot than mature stores. In addition, net sales may decrease at certain
stores when the Company opens additional stores in the same market.

The Company also believes the opening of additional Computer Superstores in
existing markets has resulted in 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>
FISCAL YEAR
-------------------
1997 1996 1995
----- ----- -----
<S> <C> <C> <C>
Net sales.................................................. 100.0% 100.0% 100.0%
Cost of sales and occupancy costs.......................... 85.7 86.5 87.7
----- ----- -----
Gross profit............................................... 14.3 13.5 12.3
Store operating expenses................................... 8.7 8.6 9.0
Pre-opening expenses....................................... 0.2 0.1 0.0
General and administrative expenses........................ 2.0 2.0 1.9
Transaction costs related to Merger(1)..................... -- 0.1 --
----- ----- -----
Operating income........................................... 3.4 2.7 1.4
Interest expense and other income, net..................... 0.1 0.1 0.3
----- ----- -----
Income before income taxes................................. 3.3 2.6 1.1
Income tax expense......................................... 1.3 1.0 0.3
----- ----- -----
Net income................................................. 2.0% 1.6% 0.8%
===== ===== =====
</TABLE>
- --------
(1) For a discussion of the Company's acquisition of PCs Compleat, see Note 2
of Notes to Consolidated Financial Statements.

Fiscal 1997 compared with Fiscal 1996

Net sales for fiscal 1997 increased 20% to $4.61 billion from $3.83 billion
for fiscal 1996. Fiscal 1997 was a fifty-two week period while fiscal 1996 was
a fifty-three week period. Net sales for fiscal 1997 increased 22% from the
comparable fifty-two week period ended June 29, 1996. The increase in net
sales was due to the

12
<PAGE>

additional sales volume attributable to the new stores opened during and
subsequent to fiscal 1996 and an increase in comparable store sales of 5.9%.
The Company believes the increase in comparable store sales was primarily due
to the maturation of the Company's store base, increased customer demand, and
increased growth in the Company's direct sales and service businesses. While
comparable store sales increased 5.9% in fiscal 1997, the Company believes the
opening of Computer Superstores in existing markets resulted in the diversion
of sales from existing stores.

Gross profit was $657 million, or 14.3% of net sales, in fiscal 1997,
compared with $518 million, or 13.5% of net sales, in fiscal 1996. 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, 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 $402 million, or 8.7% of net sales, in fiscal
1997, compared with $328 million, or 8.6% of net sales, in fiscal 1996. During
fiscal 1997, net advertising expense decreased as a percentage of net sales
and other store operating expenses increased as a percentage of net sales. The
decrease in net advertising expense as a percentage of net sales resulted
primarily 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,
typically 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 fiscal 1997, the Company incurred $6.2 million in
pre-opening expenses in connection with the opening of 24 new stores, compared
with $5.5 million in pre-opening expenses incurred in fiscal 1996 in
connection with the opening of 20 new stores, two Training Supercenter Plus
locations, and the relocation of one store. The Company incurred average pre-
opening expenses of $260,000 per store for the 24 new stores opened during
fiscal 1997, which is substantially the same as the average pre-opening
expenses incurred for the 20 new stores opened during fiscal 1996.

General and administrative expenses were $92.2 million, or 2.0% of net
sales, for fiscal 1997, compared with $75.5 million, or 2.0% of net sales, for
fiscal 1996. Increases in general and administrative expenses in fiscal 1997
were offset by the leveraging of such expenses over higher sales. General and
administrative expenses per store were approximately $785,000 in fiscal 1997,
compared with $814,000 in fiscal 1996.

Interest expense and other income, net, was $4.3 million in fiscal 1997,
compared with $5.5 million in fiscal 1996. The decrease in net expense is
attributable to increased other income related to higher average investment
levels during fiscal 1997. See "--Liquidity and Capital Resources."

The Company's effective tax rate for fiscal 1997 was 38.5%, compared with an
effective tax rate of 40% for fiscal 1996. The fiscal 1997 effective tax rate
differed from the federal statutory rate primarily due to state income taxes
offset, in part, by the benefits of tax-exempt interest income earned by the
Company. 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.

As a result of the above, net income for fiscal 1997 was $93.9 million, or
$0.99 per share, compared with net income of $59.7 million, or $0.65 per
share, for fiscal 1996.

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%. The Company believes
the increase in

13
<PAGE>

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 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.

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 expense 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 in net expense 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 Company's fiscal 1994 net loss.

As a result of the above, net income for fiscal 1996 was $59.7 million, or
$0.65 per share, compared with net income of $24.3 million, or $0.30 per
share, for fiscal 1995.

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.

14
<PAGE>

LIQUIDITY AND CAPITAL RESOURCES

At June 28, 1997, total assets were $1.12 billion, $944 million of which
were current assets, including $210 million of cash and cash equivalents. Net
cash provided by operating activities for fiscal 1997 was $72.3 million,
compared with net cash provided by operating activities of $87.7 million for
fiscal 1996.

Approximately three-fourths of the Company's net sales during 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.

Capital expenditures during fiscal 1997 were $74.2 million, $18.1 million of
which were for fiscal 1997 new stores, compared with $47.4 million of capital
expenditures during fiscal 1996, $15.5 million of which were for fiscal 1996
new stores. The Company opened 24 and 20 new Computer Superstores during
fiscal 1997 and fiscal 1996, respectively, and plans to open 30 to 40 Computer
Superstores in fiscal 1998. In addition to the capital expenditures incurred
in connection with new stores, the Company also incurred capital expenditures
in fiscal 1997 and fiscal 1996 related to improvements made in information
systems and existing stores and additions to property and equipment at the
Company's corporate facilities. 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 $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 June 28, 1997, no amounts were outstanding under the
Credit Agreement and the Company had approximately $150 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 1998 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.

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 13 of
Notes to Consolidated Financial Statements.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

None.

15
<PAGE>

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 5, 1997 under the heading "Proposal No. 1--Election of Directors,"
which information is incorporated herein by reference. Information concerning
the executive officers 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
<PAGE>

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:

<TABLE>
<C> <S>
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. (7)
3.1 Restated and Amended Certificate of Incorporation. (11)
3.2 Restated and Amended Bylaws. (4)
4.1 Specimen Common Stock Certificate (as amended). (13)
4.2 Specimen 9 1/2% Senior Subordinated Note Due 2000. (3)
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 the 9 1/2% Senior Subordinated Notes Due
2000. (1)
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. (6)
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.
(10)
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. (10)
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. (10)
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.
(10)
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. (10)
4.10 Rights Agreement dated April 29, 1994, between the Company and Bank
One, Texas, N.A., as Rights Agent. (4)
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. (5)
4.12 Letter of the Company dated August 16, 1996, appointing American
Stock Transfer & Trust Company as substitute Rights Agent under the
Rights Agreement. (10)
</TABLE>

17
<PAGE>

<TABLE>
<C> <S>
10.1 $150,000,000 Amended and Restated Credit Agreement dated December
30, 1996, among the Company, certain lenders and NationsBank of
Texas, N.A., as administrative lender. (13)
10.2 Subsidiary Guaranty dated as of December 30, 1996 by CompUSA
Holdings II Inc., PCs Compleat, Inc., CompUSA Holdings I Inc.,
CompTeam Inc., CompUSA Management Company, CompUSA Stores L.P., and
CompUSA Holdings Company. (13)
10.3 Promissory Note dated December 30, 1996, in the principal amount of
$20,000,000, issued in favor of NationsBank of Texas, N.A. (13)
10.4 Promissory Note dated December 30, 1996, in the principal amount of
$15,000,000, issued in favor of United States National Bank of
Oregon. (13)
10.5 Promissory Note dated December 30, 1996, in the principal amount of
$15,000,000, issued in favor of Bank One, Texas, N.A. (13)
10.6 Promissory Note dated December 30, 1996, in the principal amount of
$15,000,000, issued in favor of Wells Fargo Bank (Texas), N.A. (13)
10.7 Promissory Note dated December 30, 1996, in the principal amount of
$11,000,000, issued in favor of The Bank of New York. (13)
10.8 Promissory Note dated December 30, 1996, in the principal amount of
$11,000,000, issued in favor of The Bank of Nova Scotia. (13)
10.9 Promissory Note dated December 30, 1996, in the principal amount of
$11,000,000, issued in favor of The Fuji Bank, Limited--Houston
Agency. (13)
10.10 Promissory Note dated December 30, 1996, in the principal amount of
$11,000,000, issued in favor of Fleet National Bank. (13)
10.11 Promissory Note dated December 30, 1996, in the principal amount of
$11,000,000, issued in favor of Hibernia National Bank. (13)
10.12 Promissory Note dated December 30, 1996, in the principal amount of
$7,500,000, issued in favor of Credit Suisse. (13)
10.13 Promissory Note dated December 30, 1996, in the principal amount of
$7,500,000, issued in favor of The Sumitomo Bank, Limited. (13)
10.14 Promissory Note dated December 30, 1996, in the principal amount of
$5,000,000, issued in favor of Mellon Bank, N.A. (13)
10.15 Promissory Note dated December 30, 1996, in the principal amount of
$5,000,000, issued in favor of The Sakura Bank, Limited. (13)
10.16 Promissory Note dated December 30, 1996, in the principal amount of
$5,000,000, issued in favor of UMB Bank, N.A. (13)
10.17 Subordination Agreement dated December 30, 1996, by and among
CompUSA Holdings II Inc., PCs Compleat, Inc., CompUSA Holdings I
Inc., CompTeam Inc., CompUSA Management Company, CompUSA Stores L.P.
and CompUSA Holdings Company, and NationsBank of Texas, N.A. (13)
10.18 The Addison Office Lease Agreement dated September 1, 1992, between
Carter-Crowley Properties, Inc. as Landlord and CompUSA Inc. as
Tenant. (2)
10.19 CompUSA Inc. 1996 Change in Control Termination Plan. (6)
10.20 Form of Employment Agreement dated as of May 1, 1996, as amended,
between the Company and each of J. Samuel Crowley, Michael J.
Edwards, Paul F. Ewert, Ronald J. Gilmore, Harold D. Greenberg,
Melvin D. McCall, Barry C. McCook, Lawrence N. Mondry, Stuart M.
Needleman, Paul Poyfair, James E. Skinner, Mark R. Walker and
Anthony A. Weiss. (10)
</TABLE>

18
<PAGE>

<TABLE>
<C> <S>
10.21 Form of Employment Agreement between the Company and each of Aka A.
DeMesa, Rick L. Fountain, J. Robert Gary, Robyn Gatch-Priest, Dina
M. Gundelfinger, James L. Infinger, Leslie C. Marshall, Robert S.
Seay and Ronald D. Strongwater. (10)
10.22 Form of Employment Agreement between the Company and Jack Littman-
Quinn. (10)
10.23 Form of Employment Agreement dated as of August 16, 1996, between
the Company and James F. Halpin. (10)
10.24 Form of Employment Agreement dated as of August 16, 1996, between
the Company and Harold F. Compton. (10)
10.25 CompSavings Plan for Employees of CompUSA Inc. (8)
10.26 Amended and Restated CompUSA Inc. Deferred Compensation Plan. (13)
10.27 CompUSA Inc. Long-Term Incentive Plan. (12)
10.28 PCs Compleat, Inc. 1991 Stock Option Plan. (9)
11 Computation of Income per Common and Common Equivalent Share. (14)
23 Consent of Ernst & Young LLP. (14)
</TABLE>

(b) Reports on Form 8-K

1. None.

See Exhibit Index following page F-18.
- --------
(1) Previously filed as an exhibit to Registration Statement No. 33-62884 on
Form S-3 and incorporated herein by reference.
(2) 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.
(3) 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.
(4) 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.
(5) 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.
(6) 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.
(7) Previously filed as an exhibit to the Company's Report on Form 8-K filed
on June 14, 1996, as amended by Form 8-K/A filed on August 2, 1996, and
incorporated herein by reference.
(8) Previously filed as an exhibit to Registration Statement No. 33-86314 on
Form S-8 and incorporated herein by reference.
(9) Previously filed as an exhibit to Registration Statement No. 333-06235 on
Form S-8 and incorporated herein by reference.
(10) Previously filed as an exhibit to the Company's Annual Report on Form 10-
K for the fiscal year ended June 29, 1996 and incorporated herein by
reference.
(11) Previously filed as an exhibit to the Company's Registration Statement on
Form 8-A/A filed December 6, 1996, as amended, and incorporated herein by
reference.
(12) Previously filed as an exhibit to Registration Statement No. 333-18033 on
Form S-8 and incorporated herein by reference.
(13) Previously filed as an exhibit to the Company's Quarterly Report on Form
10-Q for the fiscal quarter ended December 28, 1996 and incorporated
herein by reference.
(14) Filed herewith.

19
<PAGE>

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 22, 1997
- ------------------------------------- Executive Officer
JAMES F. HALPIN

/s/ James E. Skinner Executive Vice September 22, 1997
- ------------------------------------- President and Chief
JAMES E. SKINNER Financial Officer
(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 September 22, 1997
- ------------------------------------- Board of Directors
GILES H. BATEMAN

/s/ James F. Halpin Director September 22, 1997
- -------------------------------------
JAMES F. HALPIN

/s/ Leonard L. Berry Director September 22, 1997
- -------------------------------------
LEONARD L. BERRY, PH.D.

/s/ Warren D. Feldberg Director September 22, 1997
- -------------------------------------
WARREN D. FELDBERG

/s/ Lawrence Mittman Director September 22, 1997
- -------------------------------------
LAWRENCE MITTMAN

20
<PAGE>

SIGNATURES TITLE DATE

/s/ Kevin J. Roche Director September 22, 1997
- -------------------------------------
KEVIN J. ROCHE

/s/ Denise Ilitch Lites Director September 22, 1997
- -------------------------------------
DENISE ILITCH LITES

/s/ Morton E. Handel Director September 22, 1997
- -------------------------------------
MORTON E. HANDEL

/s/ Barry L. Williams Director September 22, 1997
- -------------------------------------
BARRY L. WILLIAMS

21
<PAGE>

COMPUSA INC.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

The following consolidated financial statements of CompUSA Inc. are included
in response to Item 8:

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Auditors............................................ F-2
Consolidated Balance Sheets as of June 28, 1997 and June 29, 1996......... F-3
Consolidated Statements of Income for the fiscal years ended June 28,
1997, June 29, 1996, and June 24, 1995................................... F-4
Consolidated Statements of Stockholders' Equity for the fiscal years ended
June 28, 1997, June 29, 1996, and June 24, 1995.......................... F-5
Consolidated Statements of Cash Flows for the fiscal years ended June 28,
1997, June 29, 1996, and June 24, 1995................................... F-6
Notes to Consolidated Financial Statements................................ F-7
</TABLE>

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
<PAGE>

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 28, 1997 and June 29, 1996, and the related
consolidated statements of income, stockholders' equity, and cash flows for
each of the three years in the period ended June 28, 1997. 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 28, 1997 and June 29, 1996, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
June 28, 1997, in conformity with generally accepted accounting principles.

/s/ Ernst & Young LLP
ERNST & YOUNG LLP

Dallas, Texas
August 13, 1997

F-2
<PAGE>

COMPUSA INC.

CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARES)

<TABLE>
<CAPTION>
JUNE 28, JUNE 29,
1997 1996
---------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.............................. $ 209,929 $207,614
Accounts receivable, net of allowance for doubtful
accounts of $2,883 and $1,692 at June 28, 1997 and
June 29, 1996, respectively........................... 214,568 148,109
Merchandise inventories................................ 501,426 398,841
Prepaid expenses and other............................. 18,521 15,669
---------- --------
Total current assets................................. 944,444 770,233
Property and equipment, net (Note 3)..................... 170,801 131,184
Other assets............................................. 9,347 7,920
---------- --------
$1,124,592 $909,337
========== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable....................................... $ 483,548 $377,774
Accrued liabilities (Note 4)........................... 93,794 82,178
Current portion of capital lease obligations (Note 6).. 3,139 4,382
---------- --------
Total current liabilities............................ 580,481 464,334
Capital lease obligations (Note 6)....................... 2,458 5,066
Senior Subordinated Notes (Note 8)....................... 110,000 110,000
Deferred income taxes (Note 5)........................... 3,686 4,032
Commitments and contingencies (Notes 6 and 9)............ -- --
Stockholders' equity (Note 11):
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 91,763,372 shares issued at
June 28, 1997 and 90,215,716 shares issued at June
29, 1996.............................................. 918 902
Paid-in capital........................................ 262,908 255,216
Retained earnings...................................... 166,502 72,616
---------- --------
430,328 328,734
Less: Treasury stock, at cost, 316,627 shares and
379,460 shares at June 28, 1997 and June 29, 1996,
respectively.......................................... (2,361) (2,829)
---------- --------
Total stockholders' equity........................... 427,967 325,905
---------- --------
$1,124,592 $909,337
========== ========
</TABLE>

See accompanying notes.

F-3
<PAGE>

COMPUSA INC.

CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
FISCAL YEAR ENDED
----------------------------------
JUNE 28, JUNE 29, JUNE 24,
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Net sales................................. $4,610,523 $3,829,786 $2,935,901
Cost of sales and occupancy costs......... 3,953,407 3,311,682 2,573,945
---------- ---------- ----------
Gross profit.......................... 657,116 518,104 361,956
Store operating expenses.................. 401,722 328,344 263,654
Pre-opening expenses...................... 6,220 5,466 2,454
General and administrative expenses....... 92,183 75,488 54,940
Transaction costs related to Merger (Note
2)....................................... -- 3,453 --
---------- ---------- ----------
Operating income...................... 156,991 105,353 40,908
Other expense (income):
Interest expense........................ 12,229 12,487 12,015
Other income, net....................... (7,900) (6,983) (2,409)
---------- ---------- ----------
4,329 5,504 9,606
---------- ---------- ----------
Income before income taxes................ 152,662 99,849 31,302
Income tax expense (Note 5)............... 58,776 40,184 6,963
---------- ---------- ----------
Net income................................ $ 93,886 $ 59,665 $ 24,339
========== ========== ==========
Income per common and common equivalent
share.................................... $ 0.99 $ 0.65 $ 0.30
========== ========== ==========
Weighted average common and common
equivalent shares........................ 94,589 91,220 81,736
</TABLE>

See accompanying notes.

F-4
<PAGE>

COMPUSA INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARES)

<TABLE>
<CAPTION>
COMMON STOCK
---------------- RETAINED
PAR PAID-IN EARNINGS TREASURY
SHARES VALUE CAPITAL (DEFICIT) STOCK TOTAL
---------- ----- -------- --------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Balance at June 25,
1994................... 78,997,148 $790 $170,969 $(11,388) $ -- $160,371
Issuance of Common Stock
pursuant to stock
option and stock
purchase plans and
other.................. 1,934,692 19 1,975 -- -- 1,994
Net income.............. -- -- -- 24,339 -- 24,339
---------- ---- -------- -------- ------- --------
Balance at June 24,
1995................... 80,931,840 809 172,944 12,951 -- 186,704
Issuance of Common Stock
for cash, net of
offering costs......... 8,050,000 81 76,704 -- -- 76,785
Issuance of Common Stock
upon exercise of
stock options and
other.................. 1,233,876 12 5,448 -- -- 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................... 90,215,716 902 255,216 72,616 (2,829) 325,905
Issuance of Common Stock
upon exercise of stock
options and other...... 1,547,656 16 6,927 -- -- 6,943
Sale of treasury stock
to benefit plan........ -- -- 765 -- 468 1,233
Net income.............. -- -- -- 93,886 -- 93,886
---------- ---- -------- -------- ------- --------
Balance at June 28,
1997................... 91,763,372 $918 $262,908 $166,502 $(2,361) $427,967
========== ==== ======== ======== ======= ========
</TABLE>

See accompanying notes.

F-5
<PAGE>

COMPUSA INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-----------------------------
JUNE 28, JUNE 29, JUNE 24,
1997 1996 1995
--------- -------- --------
<S> <C> <C> <C>
Cash flows provided by operating activities:
Net income.................................... $ 93,886 $ 59,665 $ 24,339
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization............... 35,625 27,625 21,285
Restructuring costs......................... -- (214) (2,504)
Deferred income tax......................... 753 266 (4,645)
Changes in assets and liabilities:
Decrease (increase) in:
Accounts receivable....................... (66,459) (44,175) (9,875)
Merchandise inventories................... (102,585) (86,639) (29,603)
Income tax receivable..................... 1,097 (417) 2,479
Prepaid expenses and other................ (3,949) 139 286
Other assets.............................. (2,387) (63) (694)
Increase/(decrease) in:
Accounts payable and accrued liabilities.. 119,000 126,384 134,495
Income taxes payable...................... (2,709) 5,140 41
--------- -------- --------
Total adjustments....................... (21,614) 28,046 111,265
--------- -------- --------
Net cash provided by operating
activities............................. 72,272 87,711 135,604
Cash flows used in investing activities:
Capital expenditures.......................... (74,168) (47,418) (30,057)
Other......................................... 929 (565) 572
--------- -------- --------
Net cash used in investing activities... (73,239) (47,983) (29,485)
Cash flows provided by (used in) financing
activities:
Proceeds from issuance of Common Stock........ 6,943 79,344 1,994
Purchase of treasury stock.................... -- (3,521) --
Sale of treasury stock to benefit plan........ 1,233 812 --
Borrowings under line of credit agreements.... -- 48,750 54,127
Repayments of borrowings under line of credit
agreements................................... -- (48,750) (92,627)
Payments under capital lease obligations...... (4,894) (5,243) (5,149)
--------- -------- --------
Net cash provided by (used in) financing
activities............................. 3,282 71,392 (41,655)
--------- -------- --------
Net increase in cash and cash equivalents....... 2,315 111,120 64,464
Cash and cash equivalents at beginning of year.. 207,614 96,494 32,030
--------- -------- --------
Cash and cash equivalents at end of year........ $ 209,929 $207,614 $ 96,494
========= ======== ========
</TABLE>

See accompanying notes.

F-6
<PAGE>

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 28, 1997, June 29, 1996, and June 24, 1995, the Company
operated 129, 105, and 85 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, and education
customers and training and technical services. In addition, the Company
conducts mail order operations through CompUSA Direct.

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 28,
1997 relate to the fifty-two weeks then ended. All references to the fiscal
year ended June 29, 1996 relate to the fifty-three weeks then ended. All
references to the fiscal year ended June 24, 1995 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 28, 1997,
June 29, 1996, and June 24, 1995, the Company's bad debt expense was $959,000,
$878,000, and $766,000, 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:

<TABLE>
<S> <C>
Furniture and fixtures....................................... 5-10 years
Equipment.................................................... 3-5 years
Leasehold improvements....................................... Life of lease
Equipment under capital leases............................... Life of lease
</TABLE>

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 28, 1997, June 29, 1996, and June 24, 1995.

F-7
<PAGE>

COMPUSA INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

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 per share--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 are calculated using the treasury stock method.

In February 1997, the Financial Accounting Standards Board ("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. The dilutive effect of stock options and other common stock
equivalents is excluded from the calculation of basic earnings per share but
is included in the calculation of diluted earnings per share using the
treasury stock method. Basic and diluted earnings per share calculated in
accordance with the provisions of SFAS 128 are as follows:

<TABLE>
<CAPTION>
FISCAL YEAR ENDED
--------------------------
JUNE 28, JUNE 29, JUNE 24,
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Basic earnings per share.......................... $1.03 $0.68 $0.31
Diluted earnings per share........................ 0.99 0.65 0.30
</TABLE>

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. On November 6, 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 November 18, 1996, payable on
December 2, 1996. Stock options and all other agreements payable in the
Company's common stock (the "Common Stock") were amended to reflect the
splits. Amounts equal to the par value of shares issued in connection with the
stock splits have 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 splits and the issuance of shares in
connection with the Company's acquisition of PCs Compleat, Inc. ("PCs
Compleat").

Long-lived assets--In March 1995, 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 was adopted by the Company in the
preparation of its financial statements for the fiscal year ended June 28,
1997. Adoption of the standard had no impact on the Company's financial
statements.

F-8
<PAGE>

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, a leading direct reseller of brand name personal computers and
peripherals located in Marlborough, Massachusetts, became a wholly-owned
subsidiary of the Company (the "Merger"). The operations of PCs Compleat were
fully integrated into the Company's direct mail order operations and became a
part of the Company's "CompUSA Direct" division in August 1997.

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 financial statements for
all periods prior to the Merger to include the results of operations of PCs
Compleat.

3. PROPERTY AND EQUIPMENT

Property and equipment consist of:

<TABLE>
<CAPTION>
JUNE 28, JUNE 29,
1997 1996
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Furniture, fixtures, and equipment........................ $139,399 $103,425
Leasehold improvements.................................... 61,426 37,899
Equipment under capital leases............................ 23,842 22,995
Land...................................................... 6,440 2,842
Capital projects in progress.............................. 40,812 30,984
-------- --------
271,919 198,145
Less accumulated depreciation and amortization............ 101,118 66,961
-------- --------
$170,801 $131,184
======== ========

4. ACCRUED LIABILITIES

Accrued liabilities consist of:

<CAPTION>
JUNE 28, JUNE 29,
1997 1996
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Salaries and bonuses...................................... $ 34,198 $ 30,757
Taxes, other than income and payroll...................... 19,933 17,622
Rent...................................................... 10,898 9,337
Other..................................................... 28,765 24,462
-------- --------
$ 93,794 $ 82,178
======== ========
</TABLE>

F-9
<PAGE>

COMPUSA INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

5. INCOME TAXES

The provision for income taxes is summarized as follows:

<TABLE>
<CAPTION>
FISCAL YEAR ENDED
--------------------------
JUNE 28, JUNE 29, JUNE 24,
1997 1996 1995
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Income tax provision:
Current:
Federal...................................... $49,894 $35,325 $10,183
State........................................ 8,129 4,593 1,425
Deferred....................................... 753 266 (4,645)
------- ------- -------
$58,776 $40,184 $ 6,963
======= ======= =======
</TABLE>

The reconciliation of the income tax provision to the amount calculated
based on the federal statutory rate is as follows:

<TABLE>
<CAPTION>
FISCAL YEAR ENDED
----------------------------
JUNE 28, JUNE 29, JUNE 24,
1997 1996 1995
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Income tax expense at statutory rate.......... $53,432 $34,947 $10,956
State income taxes, less federal benefit...... 5,114 3,047 926
Reversal of valuation allowance............... -- (1,252) (2,008)
Nondeductible expenses, primarily transaction
costs........................................ -- 1,209 --
Nontaxable income............................. (1,501) (1,471) --
Other......................................... 1,731 3,704 (2,911)
------- ------- -------
$58,776 $40,184 $ 6,963
======= ======= =======
</TABLE>

The tax effects of temporary differences giving rise to the deferred tax
asset (liability) at June 28, 1997 and June 29, 1996 are as follows:

<TABLE>
<CAPTION>
DEFERRED TAX ASSET (LIABILITY)
--------------------------------------
JUNE 28, 1997 JUNE 29, 1996
------------------- ------------------
CURRENT NONCURRENT CURRENT NONCURRENT
------- ---------- ------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Property and equipment.............. $ -- $(6,941) $ -- $(3,859)
Accounts receivable................. 1,119 -- 498 --
Merchandise inventories............. (2,176) -- 567 --
Prepaid expenses and other
deferrals.......................... (569) 512 2,991 (3,459)
Net operating loss carryforward of
PCs Compleat....................... -- -- 510 --
Deferred rentals.................... -- 4,196 -- 3,286
Accrued liabilities and other....... 8,459 (1,453) 3,366 --
------- ------- ------ -------
$ 6,833 $(3,686) $7,932 $(4,032)
======= ======= ====== =======
</TABLE>

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 2017 and
the majority of which contain renewal options and require the Company to pay a
proportionate share of common area maintenance.

F-10
<PAGE>

COMPUSA INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

At June 28, 1997, future minimum lease payments under all leases with
initial or remaining noncancelable lease terms in excess of one year are as
follows:

<TABLE>
<CAPTION>
CAPITAL OPERATING
FISCAL YEAR LEASES LEASES
----------- ------- ---------
(IN THOUSANDS)
<S> <C> <C>
1998....................................................... $3,660 $ 60,401
1999....................................................... 1,947 63,356
2000....................................................... 925 58,880
2001....................................................... 163 54,229
2002....................................................... -- 51,069
Thereafter................................................. -- 370,383
------ --------
Total minimum lease payments............................... 6,695 $658,318
========
Less amount representing interest.......................... 1,098
------
Present value of minimum lease payments.................... 5,597
Less current portion....................................... 3,139
------
Capital lease obligations due after one year............... $2,458
======
</TABLE>

Rental expense of the Company amounted to $56,278,000, $37,692,000, and
$30,943,000 for the fiscal years ended June 28, 1997, June 29, 1996, and June
24, 1995, respectively.

7. CREDIT AGREEMENT

Effective December 30, 1996, the Company entered into a 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 June 28, 1997 and June 29,
1996, no amounts were outstanding under the Credit Agreement and the Company
had $150,000,000 and $74,400,000, 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 (8.5% per annum as of June 28, 1997) or a rate
based on the London Interbank Offering Rate ranging from 5.8% to 5.9% per
annum as of June 28, 1997, plus a specified margin. The Company also pays
certain commitment and agent fees. Although the Credit Agreement expires in
December 1999, 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 credit 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 certain 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.

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

F-11
<PAGE>

COMPUSA INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

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 $489,000,000 and $387,000,000 at June 28, 1997 and June 29,
1996, 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 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:

<TABLE>
<CAPTION>
AS OF AND FOR THE
FISCAL YEAR ENDED
-------------------
JUNE 28, JUNE 29,
1997 1996
---------- --------
(IN THOUSANDS)
<S> <C> <C>
Intercompany receivables................................ $ 70,285 $ --
Other current assets.................................... 360,754 39,442
Noncurrent assets....................................... 141,159 3,955
Intercompany payables................................... 4,521 362
Other current liabilities............................... 158,987 22,775
Long-term debt and liabilities.......................... 4,191 704
Intercompany revenues................................... 178,612 60,933
Other revenues.......................................... 3,230,511 221,536
Costs and expenses...................................... 3,142,991 218,742
Intercompany expenses................................... 123,545 --
Net income.............................................. 87,878 42,302
</TABLE>

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 $113,949,000 and $111,650,000 at June 28, 1997 and
June 29, 1996, respectively.

9. COMMITMENTS AND CONTINGENCIES

F-12
<PAGE>

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 circumstances change and additional information
becomes available during the course of litigation.

10. 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 aggregated $1,397,000 for the
fiscal year ended June 28, 1997, $1,735,000 for the fiscal year ended June 29,
1996, and $512,000 for the fiscal year ended June 24, 1995.

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 28,
1997, June 29, 1996, and June 24, 1995.

11. STOCKHOLDER'S EQUITY

Common stock--In September 1995, the Company completed a public offering,
selling 8,050,000 newly-issued shares of Common Stock and receiving net
proceeds of approximately $76,800,000 (net of offering costs of approximately
$3,500,000).

Treasury stock--In December 1995, the Company's Board of Directors
authorized the purchase of up to $30,00,000 of Common Stock. On May 24, 1996,
the Company's Board of Directors rescinded the authorization to purchase
Common Stock.

In December 1995, the Company repurchased 472,400 shares of Common Stock, to
be held as treasury stock, at a weighted average cost of $7.45 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 92,940 shares of
treasury stock from the Company. In March 1997, the Company made a cash
contribution to the 401(k) 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.

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 16,788,736 shares of
Common Stock upon the exercise of such incentive awards to employees,
nonemployee directors, and advisors of the Company.

F-13
<PAGE>

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
generally become exercisable in cumulative installments over periods of three
to four years and expire after ten years. 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 650,826 shares of Common Stock of the Company.

Stock option transactions related to both the Long-Term Incentive Plan and
the PCs Compleat Plan are summarized in the following table:

<TABLE>
<CAPTION>
FISCAL YEAR ENDED
----------------------------------------------------------------------
JUNE 28, 1997 JUNE 29, 1996 JUNE 24, 1995
-------------------- ------------------------ ------------------------
WEIGHTED
NUMBER OF AVERAGE NUMBER OF OPTION PRICE NUMBER OF OPTION PRICE
OPTIONS PRICE OPTIONS PER SHARE OPTIONS PER SHARE
---------- -------- ---------- ------------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning
of year................ 5,944,456 $ 4.77 6,308,538 $0.27-$ 7.78 7,661,990 $0.27-$8.03
Granted................. 4,764,394 $26.88 1,028,330 $1.33-$17.69 2,833,242 $0.93-$6.19
Exercised............... (1,473,030) $ 2.95 (1,070,312) $0.27-$ 7.83 (1,433,862) $0.27-$6.72
Canceled................ (535,866) $20.57 (322,100) $0.27-$ 8.85 (2,752,832) $0.27-$8.03
---------- ---------- ----------
Outstanding at end of
year................... 8,699,954 $16.21 5,944,456 $0.27-$17.69 6,308,538 $0.27-$7.78
========== ========== ==========
</TABLE>

The following table summarizes information about stock options outstanding
at June 28, 1997:

<TABLE>
<CAPTION>
STOCK OPTIONS OUTSTANDING STOCK OPTIONS EXERCISABLE
------------------------------- ----------------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
RANGE OF REMAINING EXERCISE EXERCISE
EXERCISE PRICES SHARES LIFE (YEARS) PRICE SHARES PRICE
--------------- --------- ------------ -------- -------------- -------------
<S> <C> <C> <C> <C> <C>
$ 0.27-$ 4.91........... 2,132,671 7.0 $ 3.15 1,327,158 $ 3.31
$ 5.72-$10.37........... 2,143,191 7.1 $ 7.32 1,219,269 $ 6.88
$13.88-$23.50........... 1,590,764 9.2 $21.94 297,562 $22.40
$27.50-$32.50........... 2,833,328 9.2 $29.56 583,323 $30.00
--------- --------------
8,699,954 3,427,312
========= ==============
</TABLE>

For the fiscal years ended June 28, 1997 and June 29, 1996, the Company
granted restricted stock awards for 80,002 and 163,572 shares of Common Stock,
respectively, 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 specified performance goals for the
fiscal years ended June 28, 1997 and June 29, 1996, the restricted stock
awards granted in the fiscal year ended June 29, 1996 will vest on the third
anniversary of the grant date and those granted in the fiscal year ended June
28, 1997 will vest no later than the fourth anniversary of the grant date. At
June 28, 1997, none of the restricted stock awards were vested. A provision
for restricted shares is made ratably over the vesting period. Expense
recognized under the plan for restricted shares was $601,500 and $729,500 for
the fiscal years ended June 28, 1997 and June 29, 1996, respectively.

F-14
<PAGE>

COMPUSA INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

The Company has adopted the pro forma disclosure provisions of SFAS No. 123,
"Accounting for Stock-Based Compensation". As required by SFAS 123, pro forma
information regarding net income and net income per share has been determined
as if the Company had accounted for employee stock options and stock-based
awards granted subsequent to June 24, 1995 under the fair value method
provided for under SFAS 123. The fair value for those options was estimated at
the date of grant using a Black-Sholes option pricing model with the following
weighted-average assumptions: risk-free interest rates ranging from 5.04% to
6.75% for the fiscal year ended June 29, 1996, and ranging from 5.67% to 6.60%
for the fiscal year ended June 28, 1997; a dividend yield of 0%; expected
volatility of 52.6%; and a weighted-average expected life of each option
ranging from 1.66 years to 3.75 years for both the fiscal year ended June 29,
1996 and the fiscal year ended June 28, 1997. The weighted average exercise
prices and the weighted average fair values of employee stock options and
restricted stock awards granted is as follows:

<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-----------------------------------
JUNE 28, 1997 JUNE 29, 1996
----------------- -----------------
WEIGHTED WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE AVERAGE
EXERCISE FAIR EXERCISE FAIR
PRICE VALUE PRICE VALUE
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Exercise price of award on grant date:
Less than market value............... $ 0.00 $17.09 $1.82 $6.99
Equals market value.................. 20.58 7.95 8.75 3.16
Exceeds market value................. 27.50 7.67 -- --
</TABLE>

For purposes of pro forma disclosures, the estimated fair value of the
options and stock-based awards is amortized to expense over the vesting
period. Because SFAS 123 is applicable only to options and stock-based awards
granted subsequent to June 24, 1995, its pro forma effect will not be fully
reflected until the completion of one full vesting cycle. The Company's pro
forma information is as follows:

<TABLE>
<CAPTION>
FISCAL YEAR
ENDED
---------------
JUNE JUNE
28, 29,
1997 1996
------- -------
(IN THOUSANDS,
EXCEPT PER
SHARE AMOUNTS)
<S> <C> <C>
Net income:
As reported................................................ $93,886 $59,665
Pro forma.................................................. 89,156 59,631
Earnings per share:
As reported................................................ $ 0.99 $ 0.65
Pro forma.................................................. 0.94 0.65
</TABLE>

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 year ended June 24, 1995, 223,244 shares of Common Stock were sold
under the Stock Purchase Plan.

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 28, 1997. 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

F-15
<PAGE>

COMPUSA INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

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. As a result of the two-for-one stock
splits declared by the Board of Directors effective April 8, 1996 and November
18, 1996, the number of Rights associated with each outstanding share of
Common Stock has been decreased to one-fourth of a Right in accordance with
the provisions of the Rights Agreement. The Rights will expire on April 28,
2004. Each Right will entitle its holder, 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
outstanding 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 outstanding 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 outstanding Common Stock. Under the Rights' "flip-in"
feature, if any person or group becomes the beneficial owner of 20% or more of
the outstanding 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 outstanding 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 to
another person 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 will
represent 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.

F-16
<PAGE>

COMPUSA INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

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 in the severance
agreements. The Company's officers (26 persons) 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 in control occurs, and (iii)
their annualized automobile allowance, together with payments in lieu of
continued group insurance benefits. The plan covers approximately 110 key
employees.

12. SUPPLEMENTAL CASH FLOW INFORMATION

Cash payments for interest and income taxes are as follows:

<TABLE>
<CAPTION>
FISCAL YEAR ENDED
--------------------------
JUNE 28, JUNE 29, JUNE 24,
1997 1996 1995
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Interest........................................ $11,154 $11,611 $12,274
======= ======= =======
Income taxes.................................... $59,823 $35,253 $11,065
======= ======= =======

Financing and investing activities not affecting cash are as follows:

<CAPTION>
FISCAL YEAR ENDED
--------------------------
JUNE 28, JUNE 29, JUNE 24,
1997 1996 1995
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Additions to property and equipment under
capital leases................................. $ 1,043 $ 4,491 $ 2,257
======= ======= =======
</TABLE>

F-17
<PAGE>

COMPUSA INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

13. SUPPLEMENTAL QUARTERLY FINANCIAL DATA (UNAUDITED)

<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
-------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
YEAR ENDED JUNE 28, 1997:
Net sales........................... $990,530 $1,198,603 $1,272,882 $1,148,508
Cost of sales and occupancy costs... 853,610 1,031,876 1,089,902 978,019
Operating income.................... 24,444 40,225 53,944 38,378
Net income.......................... 14,546 23,728 32,715 22,897
Income per common and common
equivalent share................... $ 0.15 $ 0.25 $ 0.35 $ 0.24
Weighted average common and common
equivalent shares.................. 94,540 94,737 94,450 94,630

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................... $ 0.07 $ 0.20 $ 0.25 $ 0.13
Weighted average common and common
equivalent shares.................. 85,070 93,017 92,574 94,218
</TABLE>

F-18
<PAGE>

INDEX TO EXHIBITS

<TABLE>
<CAPTION>
EXHIBIT
NO. INDEX TO EXHIBITS
------- -----------------
<C> <S>
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. (7)
3.1 Restated and Amended Certificate of Incorporation. (11)
3.2 Restated and Amended Bylaws. (4)
4.1 Specimen Common Stock Certificate (as amended). (13)
4.2 Specimen 9 1/2% Senior Subordinated Note Due 2000. (3)
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 the 9 1/2% Senior Subordinated Notes Due 2000. (1)
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. (6)
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.
(10)
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. (10)
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. (10)
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. (10)
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. (10)
4.10 Rights Agreement dated April 29, 1994, between the Company and Bank
One, Texas, N.A., as Rights Agent. (4)
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. (5)
4.12 Letter of the Company dated August 16, 1996, appointing American Stock
Transfer & Trust Company as substitute Rights Agent under the Rights
Agreement. (10)
10.1 $150,000,000 Amended and Restated Credit Agreement dated December 30,
1996, among the Company, certain lenders and NationsBank of Texas,
N.A., as administrative lender. (13)
10.2 Subsidiary Guaranty dated as of December 30, 1996 by CompUSA Holdings
II Inc., PCs Compleat, Inc., CompUSA Holdings I Inc., CompTeam Inc.,
CompUSA Management Company, CompUSA Stores L.P., and CompUSA Holdings
Company. (13)
10.3 Promissory Note dated December 30, 1996, in the principal amount of
$20,000,000 issued in favor of NationsBank of Texas, N.A. (13)
</TABLE>
<PAGE>

<TABLE>
<CAPTION>
EXHIBIT
NO. INDEX TO EXHIBITS
------- -----------------
<C> <S>
10.4 Promissory Note dated December 30, 1996, in the principal amount of
$15,000,000, issued in favor of United States National Bank of Oregon.
(13)
10.5 Promissory Note dated December 30, 1996, in the principal amount of
$15,000,000, issued in favor of Bank One, Texas, N.A. (13)
10.6 Promissory Note dated December 30, 1996, in the principal amount of
$15,000,000, issued in favor of Wells Fargo Bank (Texas), N.A. (13)
10.7 Promissory Note dated December 30, 1996, in the principal amount of
$11,000,000, issued in favor of The Bank of New York. (13)
10.8 Promissory Note dated December 30, 1996, in the principal amount of
$11,000,000, issued in favor of The Bank of Nova Scotia. (13)
10.9 Promissory Note dated December 30, 1996, in the principal amount of
$11,000,000, issued in favor of The Fuji Bank, Limited--Houston
Agency. (13)
10.10 Promissory Note dated December 30, 1996, in the principal amount of
$11,000,000, issued in favor of Fleet National Bank. (13)
10.11 Promissory Note dated December 30, 1996, in the principal amount of
$11,000,000, issued in favor of Hibernia National Bank. (13)
10.12 Promissory Note dated December 30, 1996, in the principal amount of
$7,500,000, issued in favor of Credit Suisse. (13)
10.13 Promissory Note dated December 30, 1996, in the principal amount of
$7,500,000, issued in favor of The Sumitomo Bank, Limited. (13)
10.14 Promissory Note dated December 30, 1996, in the principal amount of
$5,000,000, issued in favor of Mellon Bank, N.A. (13)
10.15 Promissory Note dated December 30, 1996, in the principal amount of
$5,000,000, issued in favor of The Sakura Bank, Limited. (13)
10.16 Promissory Note dated December 30, 1996, in the principal amount of
$5,000,000, issued in favor of UMB Bank, N.A. (13)
10.17 Subordination Agreement dated December 30, 1996, by and among CompUSA
Holdings II Inc., PCs Compleat, Inc., CompUSA Holdings I Inc.,
CompTeam Inc., CompUSA Management Company, CompUSA Stores L.P. and
CompUSA Holdings Company, and NationsBank of Texas, N.A. (13)
10.18 The Addison Office Lease Agreement dated September 1, 1992, between
Carter-Crowley Properties, Inc., as Landlord and CompUSA Inc. as
Tenant. (2)
10.19 CompUSA Inc. 1996 Change in Control Termination Plan. (6)
10.20 Form of Employment Agreement dated as of May 1, 1996, as amended,
between the Company and each of J. Samuel Crowley, Michael J. Edwards,
Paul F. Ewert, Ronald J. Gilmore, Harold D. Greenberg, Melvin D.
McCall, Barry C. McCook, Lawrence N. Mondry, Stuart M. Needleman, Paul
Poyfair, James E. Skinner, Mark R. Walker and Anthony A. Weiss. (10)
10.21 Form of Employment Agreement between the Company and each of Aka A.
DeMesa, Rick L. Fountain, J. Robert Gary, Robyn Gatch-Preist, Dina M.
Gundelfinger, James L. Infinger, Leslie C. Marshall, Robert S. Seay
and Ronald D. Strongwater. (10)
10.22 Form of Employment Agreement between the Company and Jack Littman-
Quinn. (10)
10.23 Form of Employment Agreement dated as of August 16, 1996, between the
Company and James F. Halpin. (10)
10.24 Form of Employment Agreement dated as of August 16, 1996, between the
Company and Harold F. Compton. (10)
10.25 CompSavings Plan for Employees of CompUSA Inc. (8)
</TABLE>
<PAGE>

<TABLE>
<CAPTION>
EXHIBIT
NO. INDEX TO EXHIBITS
------- -----------------
<C> <S>
10.26 Amended and Restated CompUSA Inc. Deferred Compensation Plan. (13)
10.27 CompUSA Inc. Long-Term Incentive Plan. (12)
10.28 PCs Compleat, Inc. 1991 Stock Option Plan. (9)
11 Computation of Income per Common and Common Equivalent Share. (14)
23 Consent of Ernst & Young LLP. (14)
</TABLE>

- --------
(1) Previously filed as an exhibit to Registration Statement No. 33-62884 on
Form S-3 and incorporated herein by reference.
(2) 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.
(3) 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.
(4) 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.
(5) 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.
(6) 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.
(7) Previously filed as an exhibit to the Company's Report on Form 8-K filed
on June 14, 1996, as amended by Form 8-K/A filed on August 2, 1996, and
incorporated herein by reference.
(8) Previously filed as an exhibit to Registration Statement No. 33-86314 on
Form S-8 and incorporated herein by reference.
(9) Previously filed as an exhibit to Registration Statement No. 333-06235 on
Form S-8 and incorporated herein by reference.
(10) Previously filed as an exhibit to the Company's Annual Report on Form 10-
K for the fiscal year ended June 29, 1996 and incorporated herein by
reference.
(11) Previously filed as an exhibit to the Company's Registration Statement on
Form 8-A/A filed December 6, 1996, as amended, and incorporated herein by
reference.
(12) Previously filed as an exhibit to Registration Statement No. 333-18033 on
Form S-8 and incorporated herein by reference.
(13) Previously filed as an exhibit to the Company's Quarterly Report on Form
10-Q for the fiscal quarter ended December 28, 1996 and incorporated
herein by reference.
(14) Filed herewith.

<PAGE>

EXHIBIT 11

COMPUSA INC.

COMPUTATION OF INCOME PER SHARE
(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
FISCAL YEAR ENDED
--------------------------
JUNE 28, JUNE 29, JUNE 24,
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Common stock outstanding at beginning of year...... 90,216 80,932 78,997
Weighted average number of shares of common stock
issued during the year............................ 619 6,578 800
Incremental shares related to assumed exercises of
stock options..................................... 3,754 3,710 1,939
------- ------- -------
Weighted common and common equivalent shares....... 94,589 91,220 81,736
======= ======= =======
Net income......................................... $93,886 $59,665 $24,339
======= ======= =======
Income per common and common equivalent share(1)... $ 0.99 $ 0.65 $ 0.30
======= ======= =======
</TABLE>
- --------

(1) The computation of income per common and common equivalent share on a fully
diluted basis does not materially differ from the amounts calculated on a
primary basis.

<PAGE>

EXHIBIT 23

CONSENT OF INDEPENDENT AUDITORS

We consent to the incorporation by reference in the Registration Statement
(Form S-3 No. 333-08715) and in the related Prospectus and in the Registration
Statements on Form S-8 No. 33-86314 pertaining to the CompSavings Plan for
Employees of CompUSA Inc., Form S-8 No. 33-99280 pertaining to the CompUSA,
Inc. Deferred Compensation Plan, Form S-8 No. 33-99282 pertaining to the Long-
Term Incentive Plan, Form S-8 No. 333-06235 pertaining to the PCs Compleat,
Inc. 1991 Stock Option Plan, Form S-8 No. 333-18033 pertaining to the Long-
Term Incentive Plan, Form S-8 No. 33-72718 pertaining to the Long-Term
Incentive Plan, and Form S-8 No. 33-45339 pertaining to the Long-Term
Incentive Plan, of our report dated August 13, 1997, with respect to the
consolidated financial statements of CompUSA Inc. included in this Form 10-K
for the fiscal year ended June 28, 1997.

/s/ Ernst & Young LLP
ERNST & YOUNG LLP

Dallas, Texas
September 17, 1997

<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S AUDITED FINANCIAL STATEMENTS AS OF AND FOR THE FISCAL YEAR ENDED JUNE
28, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000

<S> <C> <C>
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> JUN-28-1997 JUN-29-1996<F1>
<PERIOD-START> JUN-30-1996 JUN-25-1995
<PERIOD-END> JUN-28-1997 JUN-29-1996
<CASH> 209,929 207,614
<SECURITIES> 0 0
<RECEIVABLES> 217,451 149,801
<ALLOWANCES> 2,883 1,692
<INVENTORY> 501,426 398,841
<CURRENT-ASSETS> 944,444 770,233
<PP&E> 271,919 198,145
<DEPRECIATION> 101,118 66,961
<TOTAL-ASSETS> 1,124,592 909,337
<CURRENT-LIABILITIES> 580,481 464,334
<BONDS> 110,000 110,000
0 0
0 0
<COMMON> 918 902
<OTHER-SE> 427,049 325,003
<TOTAL-LIABILITY-AND-EQUITY> 1,124,592 909,337
<SALES> 4,610,523 3,829,786
<TOTAL-REVENUES> 4,610,523 3,829,786
<CGS> 3,953,407 3,311,682
<TOTAL-COSTS> 3,953,407 3,311,682
<OTHER-EXPENSES> 500,125 412,751
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 12,229 12,487
<INCOME-PRETAX> 152,662 99,849
<INCOME-TAX> 58,776 40,184
<INCOME-CONTINUING> 93,886 59,665
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 93,886 59,665
<EPS-PRIMARY> 0.99 0.65
<EPS-DILUTED> 0.99 0.65
<FN>
<F1> Information related to the Company's stockholders' equity as of June 29,
1996 and earnings per share for the fiscal year then ended has been restated for
a two-for-one stock split effected in the form of a stock dividend to
stockholders of record on November 18, 1996.
</FN>

</TABLE>