<PAGE>
- --------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED DECEMBER 27, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM __________ TO __________
COMMISSION FILE NUMBER 1-11566
COMPUSA INC.
(Exact name of registrant as specified in its charter)
DELAWARE 75-2261497
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
14951 NORTH DALLAS PARKWAY, DALLAS, TEXAS 75240
(Address of principal executive offices)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (972) 982-4000
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
--- ---
The registrant had 91,375,699 shares of common stock, $.01 per share par
value, outstanding as of February 2, 1998.
- --------------------------------------------------------------------------------
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets at December 27, 1997 (unaudited)
and June 28, 1997................................................. 3
Consolidated Income Statements for the thirteen weeks
and twenty-six weeks ended December 27, 1997 and
December 28, 1996 (unaudited)..................................... 4
Consolidated Statements of Cash Flows for the twenty-six weeks
ended December 27, 1997 and December 28, 1996 (unaudited)......... 5
Notes to Consolidated Financial Statements (unaudited).............. 6
Separate financial statements relating to the Company's subsidiaries are
omitted since all of them are wholly owned 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.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS........................................... 9
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.................................................. 15
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS................ 15
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K................................... 16
SIGNATURES.................................................................. 17
EXHIBIT 11 - COMPUTATIONS OF EARNINGS PER SHARE............................. 18
2
<PAGE>
COMPUSA INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except shares)
<TABLE>
<CAPTION>
DECEMBER 27, JUNE 28,
1997 1997
------------ -----------
(unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 291,735 $ 209,929
Accounts receivable, net of allowance for doubtful
accounts of $2,967 and $2,883 at December 27, 1997 and
June 28, 1997, respectively.............................. 223,429 214,568
Merchandise inventories................................... 680,322 501,426
Prepaid expenses and other................................ 23,719 18,521
------------ -----------
Total current assets.................................. 1,219,205 944,444
Property and equipment, net.................................. 198,239 170,801
Other assets................................................. 9,619 9,347
------------ -----------
$ 1,427,063 $ 1,124,592
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 727,293 $ 483,548
Accrued liabilities....................................... 125,715 93,794
Current portion of capital lease obligations.............. 2,145 3,139
------------ -----------
Total current liabilities............................. 855,153 580,481
Capital lease obligations.................................... 2,084 2,458
Senior Subordinated Notes.................................... 110,000 110,000
Deferred income taxes........................................ 2,659 3,686
Commitments and contingencies................................ -- --
Stockholders' equity:
Preferred stock, $.01 per share par value, 10,000 shares
authorized, none issued.................................. -- --
Common stock, $.01 per share par value; 325,000,000
shares authorized, with 92,477,648 shares issued at
December 27, 1997; 200,000,000 shares authorized with
91,763,372 shares issued at June 28, 1997................ 925 918
Paid-in capital........................................... 265,477 262,908
Retained earnings......................................... 224,028 166,502
------------ -----------
490,430 430,328
Less: Treasury stock, at cost, 1,251,627 shares at December
27, 1997 and 316,627 shares at June 28, 1997........... (33,263) (2,361)
------------ -----------
Total stockholders' equity 457,167 427,967
------------ -----------
$ 1,427,063 $ 1,124,592
============ ===========
</TABLE>
See accompanying notes.
3
<PAGE>
COMPUSA INC.
CONSOLIDATED INCOME STATEMENTS
(in thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED TWENTY-SIX WEEKS ENDED
----------------------------- -----------------------------
DECEMBER 27, DECEMBER 28, DECEMBER 27, DECEMBER 28,
1997 1996 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales............................. $ 1,456,725 $ 1,198,603 $ 2,648,537 $ 2,189,133
Cost of sales and occupancy costs..... 1,241,979 1,031,876 2,258,192 1,885,486
------------ ------------ ------------ ------------
Gross profit....................... 214,746 166,727 390,345 303,647
Operating expenses.................... 125,658 102,257 234,907 192,751
Pre-opening expenses.................. 4,028 3,579 5,480 4,477
General and administrative expenses... 28,793 20,666 54,408 41,750
------------ ------------ ------------ ------------
Operating income................... 56,267 40,225 95,550 64,669
Other expense (income):
Interest expense..................... 3,041 2,989 6,096 6,034
Other income, net.................... (2,166) (1,346) (4,084) (3,599)
------------ ------------ ------------ ------------
875 1,643 2,012 2,435
------------ ------------ ------------ ------------
Income before income taxes............ 55,392 38,582 93,538 62,234
Income tax expense.................... 21,325 14,854 36,012 23,960
------------ ------------ ------------ ------------
Net income............................ $ 34,067 $ 23,728 $ 57,526 $ 38,274
============ ============ ============ ============
Basic earnings per share.............. $ 0.37 $ 0.26 $ 0.63 $ 0.42
============ ============ ============ ============
Diluted earnings per share............ $ 0.36 $ 0.25 $ 0.60 $ 0.40
============ ============ ============ ============
Weighted average common shares........ 91,405 90,788 91,532 90,441
============ ============ ============ ============
Weighted average common and
common equivalent shares............. 95,508 94,737 95,511 94,638
============ ============ ============ ============
</TABLE>
See accompanying notes.
4
<PAGE>
COMPUSA INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
TWENTY-SIX WEEKS ENDED
---------------------------------
DECEMBER 27, DECEMBER 28,
1997 1996
------------ ------------
<S> <C> <C>
Cash flows provided by operating activities:
Net income........................................................ $ 57,526 $ 38,274
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization................................ 22,212 16,582
Changes in assets and liabilities:
Increase in accounts receivable............................ (8,861) (9,739)
Increase in merchandise inventories........................ (178,896) (187,319)
Increase in prepaid expenses and other assets.............. (5,834) (6,318)
Increase in accounts payable and accrued liabilities....... 274,499 263,348
------------ ------------
Net cash provided by operating activities............... 160,646 114,828
Cash flows provided by (used in) investing activities:
Capital expenditures.............................................. (49,748) (41,300)
Other............................................................. 697 261
------------ ------------
Net cash used in investing activities................... (49,051) (41,039)
Cash flows provided by (used in) financing activities:
Proceeds from issuance of common stock............................ 2,576 2,896
Purchase of treasury stock........................................ (30,902) --
Payments under capital lease obligations.......................... (1,463) (2,830)
------------ ------------
Net cash provided by (used in) financing activities..... (29,789) 66
------------ ------------
Net increase in cash and cash equivalents........................... 81,806 73,855
Cash and cash equivalents at beginning of period.................... 209,929 207,614
------------ ------------
Cash and cash equivalents at end of period.......................... $ 291,735 $ 281,469
============ ============
</TABLE>
See accompanying notes.
5
<PAGE>
COMPUSA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. BASIS OF PRESENTATION
The consolidated financial statements include the accounts of CompUSA Inc.
and its wholly owned subsidiaries (collectively, the "Company"). All significant
intercompany accounts and transactions have been eliminated. In the opinion of
management, the accompanying unaudited consolidated financial statements contain
all adjustments, consisting only of normal recurring adjustments, necessary to
present fairly the financial position, results of operations, and cash flows of
the Company for the applicable interim periods. The results of operations for
these periods are not necessarily comparable to, or indicative of, results of
any other interim period or for the fiscal year as a whole.
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and Article
10 of Regulation S-X. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for complete
interim financial statements. Therefore, these financial statements should be
read in conjunction with the Company's Annual Report on Form 10-K for the fiscal
year ended June 28, 1997.
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make certain
estimates and assumptions. These estimates and assumptions affect the reported
amounts of assets, liabilities, revenues, and expenses and the disclosure of
gain and loss contingencies at the date of the consolidated financial
statements. Actual results could differ from those estimates.
2. EQUITY
The Company adopted the provisions of the Statement of Financial Accounting
Standards ("SFAS") No. 128, "Earnings per Share" in the preparation of the
financial statements included in this Quarterly Report on Form 10-Q. In
accordance with the provisions of SFAS No. 128, the Company is required to
report both "basic" and "diluted" earnings per share and to restate previously
reported earnings per share amounts to conform to the provisions of SFAS 128.
Basic earnings per share has been computed using the weighted average number of
shares of common stock of the Company ("Common Stock") outstanding for each
period presented. The dilutive effect of stock options and other common stock
equivalents is included in the calculation of diluted earnings per share using
the treasury stock method. For the periods presented, the diluted earnings per
share amounts are the same as the earnings per share amounts previously reported
by the Company.
In September 1997, the Company's Board of Directors authorized the purchase
of up to $60 million of Common Stock. As of December 27, 1998, the Company had
purchased 935,000 shares of Common Stock, to be held as treasury stock, for
approximately $30.9 million (approximately $33.01 per share), pursuant to the
September 1997 authorization.
In December 1995, the Company's Board of Directors authorized the purchase
of up to $30 million of Common Stock. On May 24, 1996, the Company's Board of
Directors rescinded the December 1995 authorization to purchase Common Stock.
6
<PAGE>
COMPUSA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(unaudited)
3. COMMITMENTS AND CONTINGENCIES
The Company is a defendant from time to time in lawsuits incidental to its
business. Based on currently available information, the Company believes that
resolution of all known contingencies would not have a material adverse impact
on the Company's financial statements. However, there can be no assurances that
future costs would not be material to the 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.
4. SUBSIDIARY GUARANTEES
The Company's 9 1/2% Senior Subordinated Notes due 2000 (the "Senior
Subordinated Notes") are guaranteed on a full, unconditional, and joint and
several basis by all of the Company's direct and indirect subsidiaries, each of
which is wholly owned. The combined summarized information of these subsidiaries
is as follows:
<TABLE>
<CAPTION>
AS OF AND FOR THE
TWENTY-SIX WEEKS ENDED
--------------------------------
DECEMBER 27, DECEMBER 28,
1997 1996
------------ ------------
(in thousands)
<S> <C> <C>
Intercompany receivables..................................... $ 69,537 $ 32,193
Other current assets......................................... 516,176 441,704
Noncurrent assets............................................ 169,028 119,150
Intercompany payables........................................ 12,930 81,632
Other current liabilities.................................... 239,552 131,417
Long-term debt and liabilities............................... 2,065 2,924
Net sales.................................................... 1,810,000 1,559,130
Intercompany revenues........................................ 102,919 96,275
Costs and expenses........................................... 1,746,952 1,523,656
Intercompany expenses........................................ 68,059 68,884
Net income................................................... 60,213 38,662
</TABLE>
In the preparation of the Company's consolidated financial statements, all
intercompany accounts were eliminated. There are no restrictions that limit the
ability of the Company's subsidiaries to declare and pay dividends to the
Company.
7
<PAGE>
COMPUSA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(unaudited)
5. SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
<TABLE>
<CAPTION>
TWENTY-SIX WEEKS ENDED
-------------------------------
DECEMBER 27, DECEMBER 28,
1997 1996
------------ ------------
(in thousands)
<S> <C> <C>
Cash paid during the periods for:
Interest.................................................. $ 5,510 $ 5,586
Income taxes.............................................. 28,130 22,581
Investing activities not affecting cash are as follows:
Additions to property and equipment under capital leases.. $ 95 $ 598
</TABLE>
6. CREDIT AGREEMENT
The Company has an unsecured revolving credit agreement expiring in December
1999 (the "Credit Agreement") with a consortium of banks that provides for
borrowings and letters of credit up to a maximum of $150 million, with letters
of credit not to exceed $75 million in the aggregate. 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 December 27,
1997, the Company had approximately $149 million 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 December 27, 1997) or a rate based
on the London Interbank Offering Rate (LIBOR) of 5.9% as of December 27, 1997,
plus a specified margin, currently 0.75%. The Company also pays certain
commitment and agent fees. The Company has the annual option to extend the
Credit Agreement for an additional year with the banks' approval.
The Credit Agreement requires the maintenance of certain financial ratios and
a minimum tangible net worth. The Credit Agreement, as amended, also imposes
limitations on mergers and consolidations and prohibits the purchase of Common
Stock in excess of $130 million and the payment of dividends (other than
stock dividends). The Credit Agreement allows the Company to securitize up to
$100 million 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
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
CAUTIONARY STATEMENT REGARDING RISKS AND UNCERTAINTIES THAT MAY AFFECT FUTURE
RESULTS
This Quarterly Report on Form 10-Q contains forward-looking statements about
the business, financial condition, and prospects of the Company. The actual
results of the Company could differ materially from those indicated by the
forward-looking statements because of various risks and uncertainties, including
without limitation changes in product demand, the availability of products,
changes in competition, the ability of the Company to open new stores in
accordance with its plans, economic conditions, real estate market fluctuations,
interest rate fluctuations, dependence on manufacturers' product development,
various inventory risks due to changes in market conditions, changes in tax and
other governmental rules and regulations applicable to the Company, and other
risks indicated in the Company's filings with the Securities and Exchange
Commission. The Company's recent entry into the build-to-order market with its
CompUSA PC(TM) 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 Quarterly Report on Form 10-Q,
the words "believes," "estimates," "plans," "expects," "anticipates," and
similar expressions as they relate to the Company or its management are intended
to identify forward-looking statements.
GENERAL
All references herein to "fiscal 1998" relate to the fifty-two weeks ending
June 27, 1998, and references to "fiscal 1997" relate to the fifty-two weeks
ended June 28, 1997. In addition, all references herein to "second quarter of
fiscal 1998" and "first six months of fiscal 1998" relate to the thirteen weeks
and twenty-six weeks, respectively, ended December 27, 1997, and all references
to "second quarter of fiscal 1997" and "first six months of fiscal 1997" relate
to the thirteen weeks and twenty-six weeks, respectively, ended December 28,
1996.
The following table sets forth certain operating data for the Company:
<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED TWENTY-SIX WEEKS ENDED
---------------------------------- ----------------------------------
DECEMBER 27, DECEMBER 28, DECEMBER 27, DECEMBER 28,
1997 1996 1997 1996
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Stores open at end of period........ 148 122 148 122
Stores opened during the period..... 14 14 19 17
Stores relocated during the period.. 1 -- 2 --
Average net sales per gross square
foot(1)(3)......................... $ 363 $ 360 $ 680 $ 681
Comparable store sales
increase(2)(3)..................... 8.8% 1.5% 7.6% 4.1%
</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.
(2) Comparable store sales are net sales for stores open the same number of
months in both the indicated and previous period, including stores that were
relocated or expanded during either period.
(3) Net sales for purposes of the above calculations are comprised of net sales
generated from the Company's Computer Superstores(sm), as well as the
Company's national accounts group, but exclude mail order sales.
9
<PAGE>
The Company 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 is therefore, in the
Company's long-term best interest.
RESULTS OF OPERATIONS
As a result of the expansion of the Company's store base, period-to-period
comparisons of financial results may not be meaningful and the results of
operations for historical periods may not be indicative of the results to be
expected in future periods. In addition, the Company expects that its quarterly
results of operations will fluctuate depending on the timing of the opening of,
and the amount of net sales contributed by, new stores and the timing of costs
associated with the selection, leasing, construction, and opening of new stores,
as well as seasonal factors, product introductions, and changes in product mix.
See "-Quarterly Data and Seasonality." The following table sets forth certain
items expressed as a percentage of net sales for the periods indicated:
<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED TWENTY-SIX WEEKS ENDED
--------------------------- ---------------------------
DECEMBER 27, DECEMBER 28, DECEMBER 27, DECEMBER 28,
1997 1996 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales................................. 100.0% 100.0% 100.0% 100.0%
Cost of sales and occupancy costs......... 85.3 86.1 85.3 86.1
------------ ------------ ------------ ------------
Gross profit.............................. 14.7 13.9 14.7 13.9
Operating expenses........................ 8.6 8.5 8.9 8.8
Pre-opening expenses...................... 0.2 0.3 0.1 0.2
General and administrative expenses....... 2.0 1.7 2.1 1.9
------------ ------------ ------------ ------------
Operating income.......................... 3.9 3.4 3.6 3.0
Interest expense and other income, net.... 0.1 0.2 0.1 0.2
------------ ------------ ------------ ------------
Income before income taxes................ 3.8 3.2 3.5 2.8
Income tax expense........................ 1.5 1.2 1.3 1.1
------------ ------------ ------------ ------------
Net income................................ 2.3% 2.0% 2.2% 1.7%
============ ============ ============ ============
</TABLE>
SECOND QUARTER ENDED DECEMBER 27, 1997, COMPARED WITH THE SECOND QUARTER ENDED
DECEMBER 28, 1996
Net sales for the second quarter of fiscal 1998 increased 21.5% to $1.46
billion from $1.20 billion for the second quarter of fiscal 1997. The increase
in net sales was primarily due to the additional sales volume attributable to
the new stores opened subsequent to the second quarter of fiscal 1997 and an
increase in comparable store sales of 8.8%. 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
service businesses.
10
<PAGE>
Gross profit was $215 million, or 14.7% of net sales, in the second quarter
of fiscal 1998, compared with $167 million, or 13.9% of net sales, in the second
quarter of fiscal 1997. The increase in gross profit as a percentage of net
sales was primarily due to higher product margin and an increase in the ratio of
service revenues to total revenues. Service revenues typically have higher gross
margins than merchandise sales. The foregoing factors were partially offset by
an increase in occupancy costs related to the 26 Computer Superstores opened
since the end of the second quarter of fiscal 1997.
Operating expenses were $125.7 million, or 8.6% of net sales, in the second
quarter of fiscal 1998, compared with $102.3 million, or 8.5% of net sales, in
the second quarter of fiscal 1997. In the second quarter of fiscal 1998, net
advertising expense decreased as a percentage of net sales and other operating
expenses increased as a percentage of net sales, compared with the second
quarter of fiscal 1997. The decrease in net advertising expense as a percentage
of net sales resulted primarily from increased vendor participation. The
increase in other operating expenses as a percentage of net sales is due
partially to the increase in the ratio of service revenues to total revenues.
The increase in the ratio of service revenues to total revenues had the effect
of increasing operating expenses as a percentage of net sales because operating
expenses are generally higher for service revenues than for merchandise sales.
Pre-opening expenses consist primarily of personnel expenses incurred prior
to a store's opening and promotional costs associated with the opening. The
Company's policy is to expense all pre-opening expenses in the month of the
store's grand opening. In the second quarter of fiscal 1998, the Company
incurred $4.0 million in pre-opening expenses in connection with the opening of
14 Computer Superstores and the relocation of one store, compared with $3.6
million in pre-opening expenses incurred in the second quarter of fiscal 1997 in
connection with the opening of 14 stores.
General and administrative expenses were $28.8 million, or 2.0% of net sales,
in the second quarter of fiscal 1998, compared with $20.7 million, or 1.7% of
net sales, in the second quarter of fiscal 1997. The increase in general and
administrative expenses was primarily due to increased incentive compensation
expense and increased costs associated with the Company's efforts to expand
certain of its current businesses as well as develop new business opportunities.
Interest expense and other income, net, of $875,000, or 0.1% of net sales, in
the second quarter of fiscal 1998, remained relatively constant as a percentage
of net sales compared with $1.6 million, or 0.2% of net sales, in the second
quarter of fiscal 1997. The decrease in interest expense and other income,
net, is primarily due to increased investment income caused by higher invested
cash levels. See "-Liquidity and Capital Resources."
The Company's effective tax rate was 38.5% for both the second quarter of
fiscal 1998 and the second quarter of fiscal 1997.
As a result of the above, net income for the second quarter of fiscal 1998
was $34.1 million, or diluted earnings per share of $.36, compared with net
income of $23.7 million, or $.25 per share, for the second quarter of fiscal
1997.
SIX MONTHS ENDED DECEMBER 27, 1997, COMPARED WITH THE SIX MONTHS ENDED DECEMBER
28, 1996
Net sales for the first six months of fiscal 1998 increased 21.0% to $2.65
billion from $2.19 billion for the first six months of fiscal 1997. The
increase in net sales was primarily due to the additional sales volume
attributable to the new stores opened subsequent to the first six months of
fiscal 1997 and an increase in comparable store sales of 7.6%. 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 service businesses.
11
<PAGE>
Gross profit was $390 million, or 14.7% of net sales, in the first six months
of fiscal 1998, compared with $304 million, or 13.9% of net sales, in the first
six months of fiscal 1997. The increase in gross profit as a percentage of net
sales was primarily due to higher product margin and an increase in the ratio of
service revenues to total revenues. Service revenues typically have higher
gross margins than merchandise sales. The foregoing factors were partially
offset by an increase in occupancy costs related to the 26 Computer Superstores
opened since the second quarter of fiscal 1997.
Operating expenses of $234.9 million, or 8.9% of net sales, in the first six
months of fiscal 1998, remained relatively constant as a percentage of net sales
compared with $192.8 million, or 8.8% of net sales, in the first six months of
fiscal 1997. In the first six months of fiscal 1998, net advertising expense
decreased as a percentage of net sales and other 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.
The increase in other operating expenses as a percentage of net sales is due
partially to the increase in the ratio of service revenues to total revenues.
The increase in the ratio of service revenues to total revenues had the effect
of increasing operating expenses as a percentage of net sales because 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. In the
first six months of fiscal 1998, the Company incurred $5.5 million in pre-
opening expenses in connection with the opening of 19 Computer Superstores and
the relocation of two stores, compared with $4.5 million in pre-opening expenses
incurred in the first six months of fiscal 1997 in connection with the opening
of 17 new stores.
General and administrative expenses were $54.4 million, or 2.1% of net sales,
in the first six months of fiscal 1998, compared with $41.8 million, or 1.9% of
net sales, for the first six months of fiscal 1997. The increase in general and
administrative expenses was primarily due to increased incentive compensation
expense and increased costs associated with Company's efforts to expand certain
of its current businesses as well as develop new business opportunities.
Interest expense and other income, net, of $2.0 million, or 0.1% of net
sales, in the first six months of fiscal 1998, remained relatively constant as a
percentage of net sales compared with $2.4 million, or 0.2% of net sales, in the
first six months of fiscal 1997. See "-Liquidity and Capital Resources."
The Company's effective tax rate was 38.5% for both the first six months of
fiscal 1998 and the first six months of fiscal 1997.
As a result of the above, net income for the first six months of fiscal 1998
was $57.5 million, or diluted earnings per share of $.60, compared with net
income of $38.3 million, or $.40 per share, for the first six months of fiscal
1997.
QUARTERLY DATA AND SEASONALITY
The Company expects that its quarterly results of operations will fluctuate
depending on the timing of the opening of, and the amount of net sales
contributed by, new stores and the timing of costs associated with the
selection, leasing, construction, and opening of new stores, as well as seasonal
factors, product introductions, and changes in product mix.
Based upon its past operating history, the Company believes that its business
is seasonal. Excluding the effects of new store openings, net sales and
earnings are generally lower during the first and fourth fiscal quarters than in
the second and third fiscal quarters.
12
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
At December 27, 1997, total assets were $1.43 billion, $1.22 billion of which
were current assets, including $292 million of cash and cash equivalents. Net
cash provided by operating activities for the first six months of fiscal 1998
was $161 million, compared with net cash provided by operating activities of
$115 million for the first six months of fiscal 1997.
Approximately three-fourths of the Company's net sales during the second
quarter of both fiscal 1998 and fiscal 1997 were sales for which the Company
received payment at the time of sale either in cash, by check, or by third-party
credit card. The remaining net sales were primarily sales for which the Company
provided credit terms to corporate, government, and education customers.
Merchandise inventories increased to $680 million at December 27, 1997, from
$501 million at June 28, 1997. The increase in merchandise inventories is
primarily attributable to inventories at the 19 Computer Superstores opened in
the first six months of fiscal 1998 and higher inventories at the Company's
distribution and configuration facilities.
Capital expenditures during the first six months of fiscal 1998 were $49.7
million, of which $16.6 million were for fiscal 1998 new stores and $6.9 million
were for existing stores, compared with $41.3 million of capital expenditures
during the first six months of fiscal 1997, of which $14.9 million were for
fiscal 1997 new stores and $6.1 million were for existing stores. In addition to
these capital expenditures incurred in connection with new stores, the Company
also incurred capital expenditures in the first six months of fiscal 1998 and
fiscal 1997 related to improvements made in information systems 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. During fiscal 1998, the Company plans to open
approximately 30 to 35 new Computer Superstores and anticipates total capital
expenditures of approximately $100 to $120 million. The Company believes its
available cash and cash equivalents and vendor and bank financing are sufficient
to satisfy its short-term capital requirements.
The Company has an unsecured $150 million credit agreement (the "Credit
Agreement") with a consortium of banks that expires in December 1999. The Credit
Agreement requires the maintenance of certain financial ratios and a minimum
tangible net worth 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 6 of Notes to
Consolidated Financial Statements. At December 27, 1997, the Company had
approximately $149 million available for future borrowings after reduction for
outstanding letters of credit. The Company also finances certain fixture and
equipment acquisitions through equipment lessors. Lease financing is available
from numerous sources and the Company evaluates equipment leasing as a
supplemental source of financing on a continuing basis.
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.
13
<PAGE>
YEAR 2000 ISSUES
The Company has undertaken various initiatives intended to ensure that the
computer equipment and software used by the Company will function properly with
respect to the dates in the Year 2000 and thereafter. Based upon its assessments
to date, the Company believes that certain of the computer equipment and
software it currently uses will require replacement or modification. In
addition, in the ordinary course of replacing computer systems, the Company
attempts to utilize replacement systems that are Year 2000 compliant. Utilizing
both internal and external resources to identify needs for Year 2000
modifications, the Company currently anticipates that the modification and
conversion efforts will be completed in various stages from December 31, 1998 to
June 30, 1999 and that such modifications will be completed prior to any
currently anticipated impact on its systems.
The Company is also in the process of initiating communications with its
significant suppliers and customers to determine the extent to which system
interfaces with such entities are vulnerable to Year 2000 issues and whether the
products purchased by or from such entities are Year 2000 compliant.
The Company believes that the costs to modify its systems to be Year 2000
compliant, as well as the currently anticipated costs with respect to Year 2000
issues of third parties, will not exceed $5.0 million, which expenditures will
be funded from operating cash flows. The Company presently believes that the
Year 2000 issue will not pose significant operational problems for the Company.
However, if modifications and conversions are not made as they are identified,
or are not completed timely, there can be no assurance that the Year 2000 issues
will not have a material adverse effect on the Company or adversely affect the
Company's relationships with customers, suppliers, or others. Additionally,
there can be no assurance that the Year 2000 issues of such entities will not
have a material adverse effect on the Company's systems or business.
The costs of the efforts to be expended by the Company and the date on which
the Company believes it will complete the Year 2000 modifications are based upon
management's best estimates, which are derived utilizing numerous assumptions of
future events. However, there can be no assurance that these estimates will be
achieved and actual results could differ materially from those currently
anticipated.
14
<PAGE>
PART II
ITEM 1. LEGAL PROCEEDINGS
Note 3 of the Notes to Consolidated Financial Statements in Part I, Item 1 is
incorporated herein by reference as if fully restated herein. Note 3 contains
forward-looking statements that are subject to the risks and uncertainties
discussed in Item 2 - "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Cautionary Statement Regarding Risks and
Uncertainties That May Affect Future Results."
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held its annual meeting of stockholders on November 5, 1997. The
following are the results of certain matters voted upon at the meeting:
(a) With respect to the election of directors whose terms expired in 1997,
shares were voted as follows:
<TABLE>
<CAPTION>
JAMES F. DENISE LAWRENCE
HALPIN ILITCH LITES MITTMAN
------------ ------------ ------------
<S> <C> <C> <C>
For................................................ 86,155,958 86,171,051 86,171,966
Withheld........................................... 139,847 124,754 123,839
------------ ------------ ------------
86,295,805 86,295,805 86,295,805
============ ============ ============
</TABLE>
Messrs. Halpin and Mittman and Ms. Ilitch Lites were elected for terms
expiring on the date of the annual meeting of stockholders in 2000. The
following members of the Board of Directors have terms expiring on the date
of the annual meeting of stockholders in the years indicated: Giles H.
Bateman, Leonard L. Berry, Ph.D., and Morton E. Handel -- 1998, and Warren
D. Feldberg, Kevin J. Roche, and Barry L. Williams -- 1999.
(b) With respect to the amendments to the Company's Restated and Amended
Certificate of Incorporation to increase the number of authorized shares of
Common Stock from 200,000,000 to 325,000,000, shares were voted as follows:
<TABLE>
<CAPTION>
<S> <C>
For.................................................................................... 82,577,318
Against................................................................................ 3,555,088
Abstentions............................................................................ 163,399
------------
86,295,805
============
</TABLE>
(c) With respect to the adoption of the CompUSA Inc. Officers' Bonus Plan,
shares were voted as follows:
<TABLE>
<CAPTION>
<S> <C>
For.................................................................................... 71,237,394
Against................................................................................ 754,728
Abstentions............................................................................ 249,142
------------
72,241,264
============
</TABLE>
15
<PAGE>
(d) With respect to the ratification of the selection of Ernst & Young LLP as
the Company's independent auditors for its 1998 fiscal year, shares were
voted as follows:
<TABLE>
<CAPTION>
<S> <C>
For.................................................................................... 86,075,106
Against................................................................................ 66,018
Abstentions............................................................................ 154,681
------------
86,295,805
============
</TABLE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits:
3.1 Restated and Amended Certificate of Incorporation. (1)
3.2 Restated and Amended Bylaws. (2)
10.1 Amendment No. 1 to the CompSavings Plan for Employees of CompUSA
Inc. (1)
10.2 Amendment No. 2 to the CompSavings Plan for Employees of CompUSA
Inc. (1)
11 Computation of Earnings Per Share. (1)
27 Financial Data Schedule. (3)
(b) Reports on Form 8-K.
None.
- -----------------------------
(1) Filed herewith.
(2) Previously filed as an exhibit to the Company's Quarterly Report on Form
10-Q for the fiscal quarter ended March 26, 1994 and incorporated herein
by reference.
(3) Included with EDGAR version only.
16
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CompUSA Inc.
Date: February 10, 1998 By: /s/ JAMES E. SKINNER
------------------------------------------
James E. Skinner
Executive Vice President,
Chief Financial Officer
and Treasurer
(Principal Financial and
Accounting Officer and
Authorized Officer)
17
<PAGE>
EXHIBIT 3.1
RESTATED AND AMENDED
CERTIFICATE OF INCORPORATION
OF
COMPUSA INC.
UNDER SECTIONS 242 AND 245
OF THE
DELAWARE GENERAL CORPORATION LAW
We, James E. Skinner, Executive Vice President, and Mark R. Walker,
Secretary, of CompUSA Inc., a corporation existing under the laws of the State
of Delaware, do hereby certify under the seal of the Corporation as follows:
ARTICLE ONE
The name of the Corporation is CompUSA Inc.
ARTICLE TWO
The original Certificate of Incorporation of the Corporation was filed with
the Secretary of State, Dover, Delaware, on November 28, 1988.
ARTICLE THREE
The name under which the Corporation was originally incorporated was SW
Acquisition Corp.
ARTICLE FOUR
The amendment to the Corporation's previous Restated and Amended
Certificate of Incorporation reflected herein was duly adopted by the
stockholders of the Corporation in accordance with the provisions of Sections
242 and 245 of the Delaware General Corporation Law.
ARTICLE FIVE
This Restated and Amended Certificate of Incorporation restates and
integrates previous provisions and also amends the provisions of the
Corporation's Certificate of Incorporation.
ARTICLE SIX
The text of the Restated and Amended Certificate of Incorporation of the
Corporation, as amended hereby, is hereby restated to read in full as follows:
<PAGE>
FIRST. The name of the Corporation is CompUSA Inc.
SECOND. The address of its registered office in the State of Delaware is
1013 Centre Road, in the City of Wilmington, County of New Castle. The name of
its registered agent at such address is Corporation Service Company.
THIRD. The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of the State of Delaware.
FOURTH. The total number of shares of capital stock the Corporation shall
have authority to issue is 325,010,000 shares as follows:
<TABLE>
<CAPTION>
Number Par Value Aggregate
Class of Stock of Shares Per Share Amount
-------------- --------- --------- ------
<S> <C> <C> <C>
Preferred
(the "Preferred Stock") 10,000 $.01 $ 100
Common
(the "Common Stock") 325,000,000 $.01 $3,250,000
</TABLE>
A. PREFERRED STOCK, $.01 PAR
SECTION 1. DESIGNATION BY BOARD OF DIRECTORS. The shares of Preferred
Stock may be issued from time to time in one or more series. The Board of
Directors is hereby authorized to establish and designate the different series
and to fix and determine the voting powers, full or limited, or no voting
powers, and such designations, preferences and relative, participating, optional
or other special rights and qualifications, limitations or restrictions thereof,
as shall be stated in a resolution or resolutions providing for the issue of
such series adopted by the Board of Directors, which powers, preferences,
rights, qualifications, limitations and restrictions need not be uniform among
series. Any of the voting powers, designations, preferences, rights and
qualifications, limitations or restrictions of any such series of stock may be
made dependent upon facts ascertainable outside the resolution or resolutions
providing for the issue of such stock adopted by the Board of Directors,
provided that the manner in which such facts shall operate upon the voting
powers, designations, preferences, rights and qualifications, limitations or
restrictions of such series of stock is clearly and expressly set forth in the
resolution or resolutions providing for the issue of such series adopted by the
Board of Directors. Any resolution or resolutions adopted by the Board of
Directors pursuant to the authority vested in them by this Article Fourth,
Section A shall be set forth in a certificate of designation along with the
number of shares of stock of such series as to which the resolution or
resolutions shall apply and such certificate shall be executed, acknowledged,
filed, recorded, and shall become effective, in accordance with (S)103 of the
General Corporation Law of the State of Delaware. Unless otherwise provided in
any such resolution or resolutions, the number of shares of stock of any such
series
-2-
<PAGE>
to which such resolution or resolutions apply may be increased (but not above
the total number of authorized shares of the class) or decreased (but not below
the number of shares thereof then outstanding) by a certificate likewise
executed, acknowledged, filed and recorded, setting forth a statement that a
specified increase or decrease therein has been authorized and directed by a
resolution or resolutions likewise adopted by the Board of Directors. In case
the number of such shares shall be decreased, the number of shares so specified
in the certificate shall resume the status which they had prior to the adoption
of the first resolution or resolutions. When no shares of any such class or
series are outstanding, either because none were issued or because none remain
outstanding, a certificate setting forth a resolution or resolutions adopted by
the Board of Directors that none of the authorized shares of such class or
series are outstanding, and that none will be issued subject to the certificate
of designations previously filed with respect to such class or series, may be
executed, acknowledged, filed and recorded in the same manner as previously
described and it shall have the effect of eliminating from the Restated and
Amended Certificate of Incorporation all matters set forth in the certificate of
designations with respect to such class or series of stock. If no shares of any
such class or series established by a resolution or resolutions adopted by the
Board of Directors have been issued, the voting powers, designations,
preferences and relative, participating, optional or other rights, if any, with
the qualifications, limitations or restrictions thereof, may be amended by a
resolution or resolutions adopted by the Board of Directors. In the event of any
such amendment, a certificate which (1) states that no shares of such class or
series have been issued, (2) sets forth the copy of the amending resolution or
resolutions and (3) if the designation of such class or series is being changed,
indicates the original designation and the new designation, shall be executed,
acknowledged, filed, recorded, and shall become effective, in accordance with
(S)103 of the General Corporation Law of the State of Delaware.
SECTION 2. REGISTRATION OF TRANSFER. The Corporation shall keep at its
principal office (or at such other place as the Corporation reasonably
designates) a register for the registration of Preferred Stock. Upon the
surrender of any certificate representing Preferred Stock at such place, the
Corporation shall, at the request of the registered holder of such certificate,
execute and deliver a new certificate or certificates in exchange therefor
representing in the aggregate the number of shares represented by the
surrendered certificate. Each such new certificate shall be registered in such
name and shall represent such number of shares as is requested by the holder of
the surrendered certificate and shall be substantially identical in form to the
surrendered certificate, and, if applicable with respect to such series of
Preferred Stock, dividends shall accrue on the Preferred Stock represented by
such new certificate from the date to which dividends have been fully paid on
such Preferred Stock represented by the surrendered certificate. The issuance
of new certificates to holders of surrendered certificates shall be made without
charge to the holders of the surrendered certificates for any issuance tax with
respect therefor or other cost incurred by the Corporation in connection with
such issuance.
SECTION 3. REPLACEMENT. Upon receipt of evidence reasonably satisfactory
to the Corporation (an affidavit of the registered holder shall be satisfactory)
of the ownership and the loss, theft, destruction or mutilation of any
certificate evidencing shares of any series of Preferred
-3-
<PAGE>
Stock, and in the case of any such loss, theft or destruction, upon receipt of
indemnity reasonably satisfactory to the Corporation, or, in the case of any
such mutilation upon surrender of such certificate, the Corporation shall (at
its expense) execute and deliver in lieu of such certificate a new certificate
of like kind representing the number of shares of such series represented by
such lost, stolen, destroyed or mutilated certificate, and, if applicable with
respect to such series of Preferred Stock, dividends shall accrue on the
Preferred Stock represented by such new certificate from the date to which
dividends have been fully paid on such lost, stolen, destroyed or mutilated
certificate.
SECTION 4. AMENDMENT AND WAIVER. No amendment or waiver of any provision
of this Section A shall be effective without the prior approval of the holders
of a majority of the Preferred Stock outstanding at the time such action is
taken.
B. COMMON STOCK
Except as otherwise provided in this Section B or as otherwise required by
applicable law, all shares of Common Stock shall be identical in all respects
and shall entitle the holders thereof to the same rights and privileges, subject
to the same qualifications, limitations and restrictions.
SECTION 1. VOTING RIGHTS. Except as otherwise provided in this Section B
or as otherwise required by applicable law, holders of Common Stock shall be
entitled to one vote per share on all matters to be voted on by the stockholders
of the Corporation.
SECTION 2. DIVIDENDS. As and when dividends are declared or paid thereon,
whether in cash, property or securities of the Corporation, the holders of
Common Stock shall be entitled to participate in such dividends ratably on a per
share basis. The rights of the holders of Common Stock to receive dividends are
subject to the provisions of the Preferred Stock.
SECTION 3. LIQUIDATION. Subject to the provisions of the Preferred Stock,
the holders of the Common Stock shall be entitled to participate ratably on a
per share basis in all distributions to the holders of Common Stock in any
liquidation, dissolution or winding up of the Corporation.
SECTION 4. REGISTRATION OF TRANSFER. The Corporation shall keep at its
principal office (or such other place as the Corporation reasonably designates)
a register for the registration of shares of Common Stock. Upon the surrender
of any certificate representing shares of Common Stock at such place, the
Corporation shall, at the request of the registered holder of such certificate,
execute and deliver a new certificate or certificates in exchange therefor
representing in the aggregate the number of shares of Common Stock represented
by the surrendered certificate, and the Corporation forthwith shall cancel such
surrendered certificate. Each such new certificate will be registered in such
name and will represent such number of shares of Common Stock as is requested by
the holder of the surrendered certificate and will be substantially identical in
form to the surrendered certificate. The issuance of new certificates to
holders of surrendered
-4-
<PAGE>
certificates shall be made without charge to the holders of the surrendered
certificates for any issuance tax in respect therefor or other cost incurred by
the Corporation in connection with such issuance.
SECTION 5. REPLACEMENT. Upon receipt of evidence reasonably satisfactory
to the Corporation (an affidavit of the registered holder will be satisfactory)
of the ownership and the loss, theft, destruction or mutilation of any
certificate evidencing one or more shares of Common Stock, and in the case of
any such loss, theft or destruction, upon receipt of indemnity reasonably
satisfactory to the Corporation, or, in the case of any such mutilation upon
surrender of such certificate, the Corporation shall (at its expense) execute
and deliver in lieu of such certificate a new certificate of like kind
representing the number of shares of Common Stock represented by such lost,
stolen, destroyed or mutilated certificate and dated the date of such lost,
stolen, destroyed or mutilated certificate.
SECTION 6. AMENDMENT AND WAIVER. No amendment or waiver of any provision
of this Section B shall be effective without the prior approval of the holders
of a majority of the Common Stock outstanding at the time such action is taken.
FIFTH: The following provisions are inserted for the management of the
business and for the conduct of the affairs of the Corporation and for defining
and regulating the powers of the Corporation and its directors and stockholders
and are in furtherance and not in limitation of the powers conferred upon the
Corporation by statute:
(a) The election of directors need not be by written ballot.
(b) (i) The number of directors of the Corporation shall be such number,
not less than three nor more than thirteen, as shall be specified from time
to time in the manner provided in the bylaws, provided that no action
decreasing the number of directors shall have the effect of shortening the
term of any incumbent director and provided further that no action shall be
taken by the directors (whether through amendment to the bylaws or
otherwise) to increase the number of directors as specified from time to
time unless at least three-quarters (75%) of the directors then in office
shall concur in said action.
(ii) Effective upon the declaration of effectiveness by the Securities
and Exchange Commission of the Corporation's registration statement for the
sale of Common Stock pursuant to a Public Offering (the "Effective Date"),
the Board of Directors shall be classified, with respect to the time for
which they severally hold office, into three classes, as nearly equal in
number as possible; the term of office of those of the first class ("Class
I Directors") to continue until the first annual meeting of stockholders
following the Effective Date and until their successors are duly elected
and qualified or until their earlier resignation, death or removal; the
term of office of those of the second class ("Class II Directors") to
continue until the second annual meeting following the Effective Date and
until their successors are duly elected and qualified or until their
earlier
-5-
<PAGE>
resignation, death or removal, and the term of office of those of the third
class ("Class III Directors") to continue until the third annual meeting
following the Effective Date and until their successors are duly elected
and qualified or until their earlier resignation, death or removal. At each
annual meeting of the Corporation the successors to the class of directors
whose term expires at that meeting shall be elected to hold office for a
term continuing until the annual meeting held in the third year following
the year of their election and until their successors are duly elected and
qualified or until their earlier resignation or removal. Prior to the
Effective Date, the stockholders of the Corporation shall adopt a
resolution designating, from among the members of the Board of Directors at
the time of adoption of such resolution, directors to serve as Class I
Directors, Class II Directors and Class III Directors.
(iii) Notwithstanding anything to the contrary in this Restated and
Amended Certificate of Incorporation or the bylaws of the Corporation, (A)
vacancies and newly created directorships, whether resulting from an
increase in the size of the Board of Directors, from the death,
resignation, disqualification or removal of a director or otherwise, shall
be filled solely by the affirmative vote of a majority of the remaining
directors then in office, or by the sole remaining director, even though
less than a quorum of the Board of Directors, (B) any director elected in
accordance with clause (A) of this paragraph (iii) shall hold office for
the remainder of the full term of the class of directors in which the
vacancy occurred or the new directorship was created and until such
director's successor shall have been elected and qualified, (C) the number
of directors shall be fixed only by a vote of the Board of Directors, (D)
no decrease in the number of directors constituting the Board of Directors
shall shorten the term of any incumbent directors and (E) stockholders may
effect the removal of any director or directors only for cause, any such
removal for cause requiring the affirmative vote of holders of a majority
of the shares outstanding and entitled to vote in the election of
directors.
(c) The Board of Directors shall have the power and authority:
(1) to adopt, amend or repeal bylaws of the Corporation,
subject only to such limitation, if any, as may be from time to
time imposed by law or by the bylaws; and
(2) to the full extent permitted or not prohibited by law,
and without the consent of or other action by the stockholders,
to authorize or create mortgages, pledges or other liens or
encumbrances upon any, or all of the assets, real, personal or
mixed, and franchises of the Corporation, including after-
acquired property, and to exercise all of the powers of the
Corporation in connection therewith; and
(3) subject to any provision of applicable statute or of
the bylaws, to determine whether, to what extent, at what times
and places and under what
-6-
<PAGE>
conditions and regulations the accounts, books and papers of the
Corporation (other than the stock ledger), or any of them, shall be
open to the inspection of the stockholders, and no stockholder shall
have any right to inspect any account, book or paper of the
Corporation except as conferred by statute or authorized by the bylaws
or by the Board of Directors.
(d) A merger or consolidation between the Corporation and any other
corporation or business entity that requires the approval of the
stockholders of the Corporation under the provisions of the Delaware
General Corporation Law in effect from time to time, or a sale, lease or
exchange of all or substantially all of the assets of the Corporation, or a
voluntary dissolution of the Corporation, may be authorized only by the
affirmative vote of holders of at least two-thirds (66.66%) of the
outstanding capital stock of the Corporation entitled to vote thereon
(including the affirmative vote of holders of at least two-thirds (66.66%)
of any class or series of capital stock entitled to vote separately
thereon).
(e) No action required to be taken or which may be taken at any annual
or special meeting of stockholders of the Corporation may be taken by
written consent of stockholders, unless a consent or consents in writing,
setting forth the action so taken, is signed by the holders of all
outstanding shares of capital stock of the Corporation entitled to vote
thereon and delivered to the Corporation by delivery to its registered
office in the State of Delaware, its principal place of business, or an
officer or agent of the Corporation having custody of the book in which
proceedings of meetings of stockholders are recorded. Delivery made to the
Corporation's registered office shall be by hand or by certified or
registered mail, return receipt requested. Every written consent shall
bear the date of signature of each stockholder who signs the consent and no
written consent shall be effective to take the corporate action referred to
therein unless, within sixty days of the earliest dated consent delivered
in the manner required by this Article Fifth (e) to the Corporation,
written consents signed by all of the stockholders entitled to vote thereon
are delivered to the Corporation by delivery to its registered office in
the State of Delaware, its principal place of business, or an officer or
agent of the Corporation having custody of the book in which proceedings of
meetings of stockholders are recorded. Delivery made to the Corporation's
registered office shall be by hand or by certified or registered mail,
return receipt requested.
(f) Article Fifth (b), Article Fifth (c), Article Fifth (d), Article
Fifth (e) and this Article Fifth (f) of this Restated and Amended
Certificate of Incorporation, may be amended only by the vote of holders of
at least two-thirds (66.66%) of the capital stock of the Corporation
issued, outstanding and entitled to vote (including the holders of at least
two-thirds (66.66%) of the issued and outstanding shares of any class or
series entitled to vote separately thereon).
-7-
<PAGE>
SIXTH: No director of the Corporation shall be personally liable to the
Corporation or to any of its stockholders for monetary damages for breach of
fiduciary duty as a director, notwithstanding any provision of law imposing such
liability; provided, however, that to the extent required from time to time by
applicable law, this Article Sixth shall not eliminate or limit the liability of
a director, to the extent such liability is provided by applicable law, (i) for
any breach of the director's duty of loyalty to the Corporation or its
stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) under Section 174 of
Title 8 of the Delaware Code, or (iv) for any transaction from which the
director derived an improper personal benefit. No amendment to or repeal of
this Article Sixth shall apply to or have any effect on the liability or alleged
liability of any director for or with respect to any acts or omissions of such
director occurring prior to the effective date of such amendment or repeal.
IN WITNESS WHEREOF, CompUSA Inc. has caused its corporate seal to be
affixed hereunder and this Restated and Amended Certificate of Incorporation to
be signed by James E. Skinner, an Executive Vice President, and attested by Mark
R. Walker, its Secretary, as of the 5th day of November, 1997.
CompUSA Inc.
By /s/ James E. Skinner
------------------------------------------
James E. Skinner, Executive Vice President
ATTEST:
/s/ Mark R. Walker
- ----------------------------------
Mark R. Walker, Secretary
-8-
<PAGE>
EXHIBIT 10.1
AMENDMENT NO. 1
TO THE
COMPSAVINGS PLAN FOR EMPLOYEES OF COMPUSA INC. AND TRUST
WHEREAS, CompUSA Inc. (the "Company"), approved and adopted the CompSavings
Plan for Employees of CompUSA Inc. (the "Plan") and Trust Agreement (the
"Trust") which were originally effective January 1, 1995 and most recently
restated effective January 1, 1996;
WHEREAS, Section 19.1 of the Plan and Trust provides that the Company
reserves the right to amend the Plan and Trust;
NOW THEREFORE RESOLVED, that Sections 1 and 2 are amended effective January
1, 1996, Sections 1 and 18 are amended effective October 13, 1996 and Section 3
is amended effective February 3, 1997 as follows:
Effective January 1, 1996:
- -------------------------
1. Section 1 is amended to restate Subsection 1.55 in its entirety as follows:
1.55 "Trustee". BZW Barclays Global Investors, National Association, known
as Barclays Global Investors, National Association effective October
15, 1996.
2. Section 2 is amended to restate Subsection 2.1 in its entirety as follows:
2.1 Eligibility
All Participants as of January 1, 1996 shall continue their
eligibility to participate in the Plan. Each other Eligible Employee
shall become a Participant on the later of January 1, 1996 or, on the
first day of the next month following the date he or she attains age
21 and completes a six-month eligibility period in which he or she is
credited with at least 500 Hours of Service. The initial eligibility
period begins on the date an Employee first performs an Hour of
Service. Subsequent eligibility periods begin with the start of each
half of the Plan Year beginning after the first Hour of Service is
performed.
Effective October 13, 1996:
- --------------------------
1. Section 1 is amended to add a new Subsection 1.56 and to redesignate each
subsequent Subsection as follows:
1.56 "USERRA". The Uniformed Services Employment and Reemployment Rights
Act of 1994.
2. Section 18 is amended to add a new Subsection 18.2 and to redesignate each
subsequent Subsection as follows:
18.2 Compliance With USERRA
Notwithstanding any provision of the Plan to the contrary, with
regard to an Employee who serves in qualified military service (as
defined by Code section 414(u)(5)) and is reemployed on or after
December 12, 1994, within the time required by USERRA, contributions
shall be made and benefits and service credit shall be provided with
respect
1
<PAGE>
to his or her qualified military service in accordance with Code
section 414(u). Furthermore, notwithstanding any provision of the
Plan to the contrary, Participant loan payments may be suspended
during a period of qualified military service.
Effective February 3, 1997:
- --------------------------
1. Section 3 is amended to restate Subsection 3.6 in its entirety as follows:
3.6 Timing, Posting and Tax Considerations
Pre-Tax Contributions may only be made through payroll deduction.
Pre-Tax Contributions, other than Pre-Tax Contributions attributable
to a Participant's Deferred Compensation Plan 401(k) Plan Election,
shall be paid to the Trustee in cash and posted to each Participant's
Account(s) as soon as such amounts can reasonably be separated from
the Employer's general assets and balanced against the specific
amount made on behalf of each Participant and in no event later than
15 business days following the end of the month that includes the
date amounts are deducted from a Participant's Pay (or as that
maximum period may be otherwise extended by ERISA). Pre-Tax
Contributions attributable to a Participant's Deferred Compensation
Plan 401(k) Plan Election shall be paid to the Trustee in cash and
posted to each Participant's Account(s) as soon as such amounts can
be determined following the end of the Plan Year and balanced against
the specific amount to be transferred on behalf of each Participant
and in no event later than the March 15 following immediately
thereafter.
Pre-Tax Contributions shall be treated as Contributions made by an
Employer in determining tax deductions under Code section 404(a).
Date: October 1, 1997 COMPUSA INC.
--------- --
By: /s/ MEL McCALL
--------------------------------------------
Title: Senior Vice President - Human Resources
-----------------------------------------
The provisions of the above amendment which relate to the Trustee are hereby
approved and executed.
Date: November 12, 1997 BARCLAYS GLOBAL INVESTORS, NATIONAL ASSOCIATION
----------- --
By: Merrill Lynch, Pierce, Fenner & Smith, Inc.
By: /s/ DOLORES UPTON
--------------------------------------------
Title: Assistant Vice President
--------------------------------------
Date: November 12, 1997 BARCLAYS GLOBAL INVESTORS, NATIONAL ASSOCIATION
----------- --
By: Merrill Lynch, Pierce, Fenner & Smith, Inc.
By: /s/ PETER H. SORENSEN
--------------------------------------------
Title: Vice President
--------------------------------------
2
<PAGE>
EXHIBIT 10.2
Amendment No. 2
to the
CompSavings Plan for Employees of CompUSA Inc. and Trust
WHEREAS, CompUSA Inc. (the "Company"), approved and adopted the
CompSavings Plan for Employees of CompUSA Inc. (the "Plan") and Trust Agreement
(the "Trust") which were originally effective January 1, 1995, most recently
restated effective January 1, 1996 and subsequently amended;
WHEREAS, Section 19.1 of the Plan and Trust provides that the Company
reserves the right to amend the Plan and Trust;
NOW THEREFORE RESOLVED, that Section 5 is amended effective January 1,
1997 as follows:
1. Section 5 is amended to add a new last paragraph to each of items (a)
and (b) of Subsection 5.1 and items (a) and (b) of Subsection 5.2 as
follows:
5.1. Company Match Cash Contributions
(a) Frequency and Eligibility.
Special Incentive Contribution: The Company may, in its
sole discretion, authorize the Employer to make a
special incentive Company Match Cash Contribution as
described in the following Allocation Method paragraph
as an incentive to designated Eligible Employees to
commence making Pre-Tax Contributions. Such special
incentive Company Match Cash Contributions shall be
conditioned on the Eligible Employee making a Pre-Tax
Contribution election during a designated period
determined by the Company and may be subject to the same
eligibility conditions that apply to basic Company Match
Cash Contributions described in (1) and (2) above.
(b) Allocation Method.
Special Incentive Contribution: The special incentive
Company Match Cash Contributions (including any
Forfeiture Account amounts applied as special incentive
Company Match Cash Contributions in accordance with
Section 8.4) for each period shall be in an amount
determined by the Company and allocated as fixed dollar
amount to each eligible Participant who commenced making
Pre-Tax Contributions in accordance with a Pre-Tax
Contribution election made during the period designated
by the Company as eligible for the special incentive
Company Match Cash Contribution.
5.2 Company Match Stock Contributions
(a) Frequency and Eligibility.
Special Incentive Contribution: The Company may, in its
sole discretion, authorize the Employer to make a
special incentive Company Match Stock Contribution as
described in the following Allocation Method paragraph
as an incentive to designated Eligible Employees to
commence making Pre-
<PAGE>
CompSavings Plan for Amendment No. 2
Employees of CompUSA Inc. and Trust Agreement
Tax Contributions. Such special incentive Company Match
Stock Contributions shall be conditioned on the Eligible
Employee making a Pre-Tax Contribution election during a
designated period determined by the Company and may be
subject to the same eligibility conditions that apply to
basic Company Match Stock Contributions described in (1)
and (2) above.
(b) Allocation Method.
Special Incentive Contribution: The special incentive
Company Match Stock Contributions (including any
Forfeiture Account amounts applied as special incentive
Company Match Stock Contributions in accordance with
Section 8.4) for each period shall be in an amount
determined by the Company and allocated as a fixed
dollar amount to each eligible Participant who commenced
making Pre-Tax Contributions in accordance with a
Pre-Tax Contribution election made during the period
designated by the Company as eligible for the special
incentive Company Match Stock Contribution.
Date: December 22, 1997 CompUSA Inc.
-------------- --
By: /s/ Brent Day /s/ Mel McCall *
--------------------------------------------
Title: Director, Compensation & Benefits
-------------------------------------
* Senior Vice President-Human Resources
The provisions of the above amendment which relate to the Trustee are hereby
approved and executed.
Date: December 23, 1997 Barclays Global Investors, National Association
-------------- -- By Merrill Lynch, Pierce, Fenner & Smith, Inc.
By: /s/ Peter H. Sorensen
--------------------------------------------
Title: Vice President
-------------------------------------
2
<PAGE>
EXHIBIT 11
COMPUSA INC.
COMPUTATIONS OF EARNINGS PER SHARE
(in thousands, except per share data)
<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED TWENTY-SIX WEEKS ENDED
----------------------------- -----------------------------
DECEMBER 27, DECEMBER 28, DECEMBER 27, DECEMBER 28,
1997 1996 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Common shares outstanding at beginning of
period................................... 91,853 90,403 91,447 89,837
Weighted average number of common shares
issued during the period................. 180 385 399 604
Weighted average treasury shares
purchased during the period.............. (628) -- (314) --
------------ ------------ ------------ ------------
Weighted common shares.................... 91,405 90,788 91,532 90,441
Incremental shares related to assumed
exercise of stock options................ 4,103 3,949 3,979 4,197
------------ ------------ ------------ ------------
Weighted common and common equivalent
shares................................... 95,508 94,737 95,511 94,638
============ ============ ============ ============
Net income................................ $ 34,067 $ 23,728 $ 57,526 $ 38,274
============ ============ ============ ============
Basic earnings per share.................. $ 0.37 $ 0.26 $ 0.63 $ 0.42
============ ============ ============ ============
Diluted earnings per share................ $ 0.36 $ 0.25 $ 0.60 $ 0.40
============ ============ ============ ============
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S UNAUDITED FINANCIAL STATEMENTS AS OF AND FOR THE THIRTEEN AND
TWENTY-SIX WEEKS ENDED DECEMBER 27, 1997, AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-27-1998
<PERIOD-START> JUN-29-1997
<PERIOD-END> DEC-27-1997
<CASH> 291,735
<SECURITIES> 0
<RECEIVABLES> 226,396
<ALLOWANCES> (2,967)
<INVENTORY> 680,322
<CURRENT-ASSETS> 1,219,205
<PP&E> 319,487
<DEPRECIATION> (121,248)
<TOTAL-ASSETS> 1,427,063
<CURRENT-LIABILITIES> 855,153
<BONDS> 110,000
0
0
<COMMON> 925
<OTHER-SE> 456,242
<TOTAL-LIABILITY-AND-EQUITY> 1,427,063
<SALES> 2,648,537
<TOTAL-REVENUES> 2,648,537
<CGS> 2,258,192
<TOTAL-COSTS> 2,258,192
<OTHER-EXPENSES> 294,795
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,096
<INCOME-PRETAX> 93,538
<INCOME-TAX> 36,012
<INCOME-CONTINUING> 57,526
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 57,526
<EPS-PRIMARY> 0.63
<EPS-DILUTED> 0.60
</TABLE>
